Friday, February 3, 2023
HomeMarketChina’s Covid Problem Is Getting Worse. It Has Global Consequences.

China’s Covid Problem Is Getting Worse. It Has Global Consequences.

Some businesses in Beijing have reportedly closed their offices amid surging Covid-19 cases in China.

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China reported a record number of new daily Covid-19 infections for a second consecutive day, with more than 32,000 cases registered on Thursday.

Authorities, which have long adopted a zero-Covid strategy, are turning to lockdown measures in major cities in a bid to combat the spread. But they have stopped short of full lockdowns for now.

These tough restrictions from the world’s second largest economy has implications for global economic growth, as well as inflation. That’s especially the case given manufacturing hubs, such as Zhengzhou–home to the world’s biggest
Apple
(ticker: AAPL) iPhone assembly factory–are now under short-term lockdowns.

Residents in parts of the capital Beijing have been urged to stay at home, while a number of public venues have been closed. “Yesterday we were ordered to close our Beijing office and all employees work from home,” James Zimmerman, a partner in the Beijing office of U.S. law firm Perkins Coie, said in a post on Twitter Friday. “This morning our 30+ staff reported their communities went into a 7-day lockdown,” he added.

Measures to lock down key parts of the country mean that supply-chain issues will persist in China, Garry White, analyst at U.K. wealth manager Charles Stanley said.

“Hopes that this policy will be eased have been dashed as cases of Covid-19 approach a record high. This has added to the risk of further inflation as it results in a shortage of finished goods and components,” White added.

But a key element of the global inflationary pressures–energy prices–could be eased by China’s mounting Covid challenges.

Continued concerns over demand in China, as well as talks among European Union leaders over a Russian oil price cap, mean oil prices are set to end the week lower.

“There are palpable concerns that Chinese authorities will reintroduce widespread restrictions which would severely dent economic activity,” Hargreaves Lansdown analyst Sophie Lund-Yates said in a note Friday, adding that reports of a high price cap on Russian oil have eased supply fears. 

“The net effect of a weak demand profile and better supply is downward pressure on the oil price,” she added.

Write to Callum Keown at callum.keown@barrons.com


Credit: marketwatch.com

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