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Sunday, June 19, 2022
Shanghai's Lockdown and Its Dire Economic Impact
He Jun

In the first half of this year, measures taken against the COVID-19 pandemic have greatly impacted China’s economy. Shanghai, the largest city in China, was the hardest hit. The city-wide lockdown that lasted for more than two months is unprecedented in Shanghai’s urban economy, social development, and urban governance. Such an experience will become part of the city’s indelible memory.

China on the whole, including Shanghai, is now gradually recovering from the impact of the pandemic. Efforts have been taken to stabilize the economic market, and to gradually restore the vitality of urban commerce and employment. From an economic point of view, the release of Shanghai's second-quarter economic data has shown us the extent of the economic impact of the measures taken to tackle COVID-19.

According to data published by the official website of the Shanghai Municipal Bureau of Statistics on June 17, in May 2022, Shanghai's industrial enterprises above the designated size completed a total industrial output value of RMB 234.124 billion, a reduction of 27.6% from the same month last year. The industrial production and sales ratio was 100.1%, an increase of 0.3 percentage points from the same month last year. The export delivery value of industrial enterprises was RMB 51.237 billion, down 19.6%.

In terms of investment, from January to May, Shanghai's fixed-asset investment fell by 21.2% over the same period last year. Among the three major investment fields, urban infrastructure investment fell by 41.3% year-on-year; industrial investment fell by 22.1%, and real estate development investment fell by 18.0%. Among the city's three major industrial investments, the investment in the primary industry decreased by 57.3% over the same period last year, while the investment in the secondary industry dropped 22.1%. At the same time, the investment in the tertiary industry decreased by 21.0%.

Consumption wise, based on the key indicator of total retail sales of consumer goods in Shanghai, the total social consumption in April and May dropped by 48.3% and 36.5% year-on-year respectively. The total social consumption in January-April and January-May were RMB 509.925 billion and RMB 604.754 billion respectively, down 14.2% and 18.7% year-on-year. In terms of consumable food products, the total sales in May were RMB 27.374 billion, a year-on-year decrease of 14.2%; the total sales from January to May were RMB 142.781 billion, a year-on-year decrease of 10.7%. In terms of clothing and apparel, the sales were RMB 23.583 billion in May, a year-on-year decrease of 31.5%; from January to May, it was 146.177 billion yuan, a year-on-year decrease of 17.8%. When it comes to usable products, the sales were RMB 42.632 billion in May, down 45.6% year-on-year; from January to May, it was RMB 301.222 billion, a decrease of 21.7% year-on-year. As to fuel products, the sales were RMB 1.239 billion in May, a reduction of 73.0% year-on-year; reaching RMB 14.575 billion from January to May, down 30.4% year-on-year. From the changes in these categories of consumer goods, it can be seen that the lockdown exerted a great impact on production and consumption activities. According to the latest data on new vehicles with compulsory traffic insurance, the sales volume of new vehicles in Shanghai in May was 2,603, a sharp drop of 95.19% compared with the same period in 2021. From January to May, the cumulative sales volume of the Shanghai automobile market reached 150,000 units, a year-on-year decrease of 51%.

With reference to foreign trade, Shanghai is an important foreign trade city in the country, and Shanghai Port has the world's largest container throughput. Data from the Shanghai Municipal Bureau of Statistics indicated that in April, Shanghai's total foreign trade import and export volume was RMB 219.149 billion, down 36.5% from the same month last year. Among the figures, exports were RMB 69.596 billion, a decrease of 43.8% year-on-year. Meanwhile, imports were RMB 149.553 billion, down 32.5% year-on-year. From January to April, Shanghai achieved a total import and export volume of RMB 1,226.953 billion, an increase of 0.1% over the same period last year. Based on the estimation of the Shanghai Customs, imports and exports in April fell by 41.6% year-on-year, of which exports fell by 45% and imports fell by 37.5%. From January to April, imports and exports increased by 2.9% year-on-year, of which exports increased by 6.7% year-on-year and imports reduced by 2% year-on-year. Data from the China Ports Association showed that in April, the container throughput of Shanghai Port was 3.085 million TEUs, 82.4% of the same period last year. Since May, the operation volume has continued to rebound, with an average daily operation volume of 112,000 TEUs.

Figure: Changes in Shanghai’s Economic Statistics in Recent Years

Source: Shanghai Municipal Bureau of Statistics, plotted by ANBOUND

As regard prices, in May this year, Shanghai's consumer price rose by 4.6% year-on-year. Among them, the price of consumer goods rose by 7.5%, and the price of services rose by 1.4%. In May, the prices of food, tobacco, and alcohol rose by 13.1% year-on-year, in which the prices of vegetables, edible fungi, and eggs rose by 50.8% and 52.3% respectively (59% and 53.4% in April). The prices of dried and fresh melons and fruits and aquatic products rose by 35.9% and 19.6% respectively, and the increase continued to expand. On the other hand, the price of livestock and meat changed from falling to rising, up 3.7%. It should be pointed out that behind the changes in the price data in May, it is necessary to see not only the sharp rise in daily necessities but also the price decline caused by the shrinking consumption of some commodities under the lockdown.

Based on the tracking of the macro research team at ANBOUND, due to Shanghai’s lockdown starting from March this year, the depth and duration of the decline in major economic data of the city have significantly exceeded the impact of COVID-19 in early 2020. Considering the multiple factors like the characteristics of the Omicron variant, the stock of vaccines and treatment medical drugs in China, and the understanding of COVID-9 after two years of the pandemic, it must be admitted that the economic downturn of the first five months in Shanghai is tantamount to a disaster.

Having a clear understanding of the impact of COVID-19 measures on Shanghai's economy and the huge price paid by businesses and ordinary people will enable a better discernment of the cost of strict public policies. To this end, in the formulation and implementation of future policies, relevant departments need to weigh the public policies more prudently.

Final analysis conclusion:

Shanghai is the largest city in China, a window for China to open-up to the world, and a sample for the world to observe changes in China. If the COVID-19 pandemic itself has not undergone qualitative and malignant changes (such as high viral load, high severe disease rate, high fatality rate, and high hospitalization rate), it would not be appropriate for Shanghai to implement large-scale and long-term lockdown again in the future. The resulting huge cost of such a measure will be unbearable not only to the city, but also to the common people and to the whole country.

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