Shanghai Lockdowns Impact Global Economy

The heart of the global consumer supply-chain is now under threat.

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Let's get real about China's lockdowns

Hey Guys,

This will again be more about the macro economy threat of Shanghai lockdowns on the global economy, rather than debate about any stock or investing analysis. I’m watching this with grave concern! And I’m going to try to tell you why.

The stock market didn’t follow the real economy during the pandemic with unprecedented QE. However as interest rates rise there are yet again new risks.

China’s economy may have?accelerated in the first quarter, with the National Bureau of Statistics on Monday announcing that gross domestic product expanded by 4.8% annually. This is very hard to imagine that this momentum can continue, considering the Shanghai lockdowns. How China fudges numbers may look a bit ridiculous this year.

Analysts are super worried about China’s impact on the global economy and stagflation and supply-chain issues in 2022. Remember that Shanghai is by far the biggest port. In the entire world.

Analysts say the figures likely overstate the strength of the country's economy, just as some warn of?serious global economic fallout?from prolonged isolation orders. Nearly?400 million people across 45 cities in China?are under a form of lockdown as China looks to eliminate COVID — representing 40%, or $7.2 trillion, of annual gross domestic product — according to data from Nomura Holdings.

This means that China will be locked down to some degree for the entire second half of 2022, since it’s important meetings on in the Fall.

More Pain to Come for China’s Coming Recession

It’s getting super hard to even trust China’s numbers any longer. They claim that China’s?economy grew by 4.8 per cent in the first quarter of 2022?compared with a year earlier, up from the 4 per cent growth seen in the fourth quarter of last year. Apparently according to their data,?Retail sales fell by 3.5 per cent?in March from a year earlier, while industrial production grew by 5 per cent last month and the surveyed jobless rate rose to 5.8 per cent.

I can assure you the real unemployment in China in 2022 is much higher than this.

China’s Covid policy locks down a city three times the size of New York

People don’t realize how Shanghai is symbolic of the heart of the world’s consumer. Beijing Government has control over its polices, it must follow the CCP’s angle on this.

That is, Covid-19 lockdowns in China this year in 2022 are completely political. This means that China could lead the world into a recession in 2023. The shutdowns in China and the Ukraine War are the likely triggers.

Thanks to its zero tolerance for Covid-19 cases, China was the only major economy to grow in 2020. It’s Government?would lose face?if it walks back this strategy, it’s bizarre but is the painful truth. This basically dooms the world to enter a Global recession, with China and Europe themselves at high risk to begin later in 2022.

Chinese ports are also a huge part of the logistics chain of the world. Food shortages are also expected as Covid-19 continues to spread in China. A lockdown in the major manufacturing and export hub of Shanghai has led to food shortages and left?the largest port in the world understaffed. China's?consumer spending fell?while unemployment reached its worst rate since the early months of the pandemic. Massive layoffs in ChinaTech are already occurring. China’s regularity crackdown coincided with Covid-19 is a pretty poor policy year. It’s bad timing.

China is already suffering from floods that it dealt with and with a real-estate developer debt crisis. How do you keep the national stability with so many obstacles? China’s consumers impact so many foreign businesses as well. Now with the war there’s even the risk of Western sanctions! This is a disaster for China’s economy growth in 2022. There have been massive policy and diplomatic errors made and bad calculations.

A $7.2T risk to the global economy

Experts and economics warn of?serious global economic fallout?(CNN) from prolonged isolation orders. Nearly 400 million people across 45 cities in China are under a form of lockdown as China looks to eliminate COVID — representing 40%, or $7.2 trillion, of annual gross domestic product — according to data from Nomura Holdings.

Lockdowns are expensive and as Covid-19 spreads in mainland China, the impact is going to be enormous. The zero-covid policy is going to meet its fate, and it could even become a humanitarian crisis.

Just as the war and energy crisis involving Ukraine will lead to various humanitarian issues with food shortages and other problems including a lot of migrants. The geopolitical instability we are seeing in 2022 and will see in 2023 is a bit unprecedented in recent memory, not just the worst stagflation seen since the 1970s but many times worse due to a pandemic, and a war, it’s almost biblical. Worsening global warming does make it biblical with the cost of mega-storms, and more environmental damage to the global economy engine.

In China, joblessness reached the highest level since the early part of the pandemic. And it’s just the beginning due to the shutdowns. Deaths among the elderly in China is also likely to mimic what we saw in Hong Kong recently in some places. It’s really the over 70 crowd that will take the brunt of deaths.

The Importance of Shanghai

Shanghai is the engine of the world’s economy.?It represents 3% of China’s GDP. For a sense of the economic scale on China’s latest Covid lockdowns, look at the numbers on Shanghai.

• In terms of U.S. states, Shanghai’s population is between that of Florida (pop. 21.8 million) and Texas (pop. 29.5 million).
• Shanghai is home to the world’s busiest port, followed by Singapore, according to Bernstein.

Due to Beijing’s zero-covid policy, lockdowns are going to be brutal and it’s going to start to impact the global economy. That will impact stocks even more due to higher interest rate hikes and weird behavior of the bond market. It could become quite dire all at once.

Shanghai gets the attention but 400 million in lockdown means China is standing still, for multiple weeks (maybe months) in 2022.

Recent History:

As Covid cases began to spike in late February, Shanghai tried to control the outbreak with targeted, neighborhood lockdowns. But the city, a center for global transport, manufacturing, finance and trade, decided in late March to implement a two-stage lockdown that soon applied to all districts, generally forcing people not to leave their apartments.

It’s gotten pretty brutal in the rigid zero-covid policy now in April, people are breaking in terms of mental health and access to food.

Think about it, most people outside China know that Shanghai is big, but few realize just how big economically. The following numbers indicate the scale of Shanghai as an economic center — and may hint at the cost of the lockdown. Shanghai is the heart of global consumer economies.

Shanghai’s official permanent resident population in 2020 was?24.9 million.

• That’s slightly less than?Australia’s population of 25.7 million, per the World Bank.
• But it’s only 1.8% of China’s 1.41 billion people.
• In terms of U.S. cities, Shanghai is three times the size of New York City (pop. 8.3 million) — the largest city in the United States.
• That means the?280,120 Covid contacts?Shanghai has reported as of Thursday for the latest outbreak represent only 1.1% of the city’s population.
• Shanghai’s GDP grew by 8.1% in 2021 to?4.32 trillion yuan ($680.31 billion).
• That GDP is?slightly more than Sweden’s ($660.92 billion)?and less than Poland ($720.35 billion), according to the IMF.
• But Shanghai’s GDP was only 3.8% of China’s national GDP of 114.37 trillion yuan in 2021, according to official figures.
• Global trade: In all, Shanghai accounted for 7.3% of China’s exports and 14.4% of imports in 2021, according to Citi.
• According to Citi, Shanghai is China’s:
• Most important semiconductor manufacturing center, home to SMIC, Hua Hong and Universal Scientific Industrial.
• Home to many auto producers: SAIC Motor, SAIC’s joint companies with Volkswagen and?GM,?Nio,?Tesla?and?Ford.
• Headquarters or a major center for multinational corporations’ China operations:?Apple, L’Oreal, Samsung Electronics, P&G, L’Oreal, LVMH,?Nike, Panasonic, Philips, Johnson & Johnson and?General Electric, among others.
• Base for ship producers: Jiangnan , Zhonghua and Waigaoqiao shipbuilding.

All in all to keep your main city closed is really tough policy. Economics and health experts agree is probably a really bad idea. Xi Jingping however is not exactly the most educated world leader. From 1998 to 2002, Xi studied Marxist theory and ideological education in Tsinghua University, graduating from there with a doctorate in law and ideology in 2002. It’s great to have an ideology of Nationalism at the heart of New China’s economic growth, but it’s not the best angle.

China already convinced itself its approach to Covid-19 is the superior one, I guess we’ll have to witness it to find out as the new variants are not going anywhere.

The Shanghai Stock Exchange is the?world’s third-largest by market capitalization,?behind the New York Stock Exchange and the Nasdaq as of the end of 2020, according to World Federation of Exchanges data cited by the exchange.

Shanghai’s importance to the global economy cannot be overstated. To shut it down is truly an exhibition of a totally different political structure. I cannot even imagine what its citizens are going through, we were all shut down for a few weeks in March 2020 but nothing like China will see in the 2nd half of 2022.

If Earnings continue to decline, the stock market will not react favorably to stagflation and the risks of a global recession.

What do you think?

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Anyways I hope you enjoyed the topic, that’s all for today.

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China’s rising household debt is shattering dreams of financial freedom, and ‘fears are spreading’

• Salary reductions, lay-offs, lockdowns and regulatory crackdowns are upending the lives of those who were once the envy of China’s middle class
• If coronavirus-induced lockdowns and restrictions drag out for more than two months, some warn that the impact could be ‘unimaginable’

Further reading: SCMP - https://www.scmp.com/economy/china-economy/article/3174408/chinas-rising-household-debt-shattering-dreams-financial