China's biggest COVID-19 lockdown in 2 years prompts new supply chain concerns
CBC
China's most extensive COVID-related lockdown in two years is underway in Shanghai, as the city of 26 million people undergoes a series of phased shutdowns to test a growing outbreak of the coronavirus.
China's financial capital and largest city has implemented a two-phase partial lockdown for the next 10 days, starting with the Pudong financial district and nearby areas from Monday to Friday. This will allow mass testing to get underway after 3,500 new cases of COVID-19 were reported Sunday.
In the second phase of the lockdown, the vast downtown area west of the Huangpu River that divides the city will start its own five-day lockdown.
Residents will be required to stay home and deliveries will be left at checkpoints to ensure there is no contact with the outside world. Offices and all businesses not considered essential will be closed and public transport suspended. Bridges and tunnels in and out of the area are being strictly monitored.
Consumers and businesses in North America and Europe may well feel the impact on supply chains.
"The damage may also spread farther than that because Shanghai is such an important node in global supply chains," Bloomberg economist Chang Shu said. "So far the lockdown allows for continued operations at financial institutions and ports [but] anything beyond the current plan risks disruptions to financial flows and international trade."
Electric car maker Tesla has a factory in Shanghai that the company says is currently out of production.
The facility is China's second biggest in the world outside of its main facility in California. Some of the vehicles produced there are exported to markets beyond China.
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The shutdown "invokes deeper supply chain concerns and inflationary implications," Scotiabank economist Derek Holt said.
"Among the uncertainties could be concern about what the testing results may look like and any associated policy response, plus whether this will be a template for expanding measures elsewhere."
Oil prices responded immediately to the prospect that more lockdowns in the economy of China would produce dramatic declines in demand for energy.
West Texas Intermediate lost almost $10 per barrel to trade at a little over $104 US.
Colin Cieszynski, chief market strategist at SIA Wealth Management in Toronto, said lockdown fears have spooked the market.
