The Chinese economy has slowed sharply. The reason for this is the strict lockdown, which paralyzes multimillion-dollar cities and large industrial centers. The effect is already being felt in Germany, writes “Deutsche Welle“.
Industrial production in China fell by about 3% in April, according to data released by Beijing on Monday. In retail trade, the decline is even greater – by as much as 11 percent compared to the same month last year.
The economic problems of the People’s Republic, considered the locomotive of the world economy, are a consequence of the authorities’ strict strategy for “zero Kovid”. “The pandemic has seriously affected the economy,” said a spokesman for the statistical office.
The effects are also felt in the labor market
Strict lockouts in a number of major cities, such as the economic metropolis of Shanghai, are having an effect on both the labor and real estate markets in China. The value of real estate transactions has fallen by almost half compared to the previous month. One reason for this is the pandemic situation, but there is another – the authorities’ fight against market speculation.
As the construction industry is an important driver of the Chinese economy, the downturn is also affecting the labor market. Unemployment in the country is currently six percent – the highest since February 2020.
While the restrictions on exit and the firm strategy towards Kovid are causing some dissatisfaction in the country, the consequences of these measures are already being felt in Germany. Many companies are short of raw materials and intermediates, as the world’s largest port, Shanghai, is severely limited by lockouts.
Huge traffic jams around Shanghai port
Huge container vessels waiting to be loaded or unloaded are waiting in line to be serviced and form huge traffic jams. According to experts, the volume of exports at the port has already fallen by 40%. Shanghai is the most important port for German container shipping.
As a result of these problems, orders from German companies are also piling up. According to the Ifo Institute, the number of unfulfilled orders in enterprises has reached a new record. The companies are able to continue their production for another 4 and a half months on average without receiving new orders. On the one hand, this is positive, but on the other hand it is a consequence of the shortage of products from subcontractors.
Screenshot of the traffic jam in the port of Shanghai (from the application “MarineTraffic”)
“Accumulated orders not only reflect the high demand for German industrial goods in recent months,” said Ifo economist Timo Wolmersheuser. “They are also indicative of the difficulties faced by companies in fulfilling existing orders on time in the face of a shortage of important intermediates and raw materials.”
Light in the tunnel
The German government is looking at China, its most important trading partner, with some concern. “If China continues to be affected by lockdowns, new supply difficulties and a slowdown in world trade are possible,” the German Economy Ministry said in a current monthly report. That is why the prospects for the national economy are different.
Timo Volmersheuser also believes that supply difficulties may worsen as a result of strict lockdown regimes in Chinese cities.
The good news for Shanghai is that for the Chinese authorities, the spread of the coronavirus has largely stopped, and measures in the city are beginning to loosen. “Kovid’s peak in April had a major impact on the economy, but the consequences will be short-lived,” said Fu Linhui. If the virus is brought under control and economic stabilization policies work, the economy can be expected to recover gradually.
German companies can also hope for this. The longer the problems in China continue, the harder it will be for many companies’ orders to contribute to economic recovery.
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