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Shanghai’s Covid Lockdown Spells Trouble for Chinese Consumers
16-09-2022, 05:10 AM
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Shanghai’s Covid Lockdown Spells Trouble for Chinese Consumers
Shanghai’s Covid Lockdown Spells Trouble for Chinese Consumers


As China has extended its drastic lockdown of Shanghai, leaving people in the city of 25 million sleeping in their offices, separated from loved ones and pleading online for food and medicine , concern is growing about the scars it may leave on Chinese consumers—a crucial growth engine for the struggling economy but also for a host of global companies.To get more news about covid19 in shanghai, you can visit shine news official website.

The outlook doesn’t look good—and that could be a near-term problem for Chinese stocks and even the global economy. “Consumers will be more cautious this time around. Their pandemic savings are depleting, wealth has been destroyed in equities and property and wage growth has already turned down,” says Freya Beamish, head of macro research at TS Lombard says via email.Also not helpful: Layoffs in the technology sector as companies try to adjust to a raft of new regulations that keep coming, despite Beijing’s recent reassurances its crackdown would wind down soon.

For example, Tencent Holdings (ticker: 700.Hong Kong) on Thursday said it would shut its videogame streaming app, only noting a change in its business development strategy. The KraneShares CSI China Internet exchange-traded fund (KWEB) fell 4% to $28.81 while the Global X MSCI China Consumer Discretionary ETF (CHIQ) is down almost 3% at $19.58.

The damage to consumer spending is already showing up with holiday data from the Qing Ming festival showing a sharp deterioration from last year. The Caixin service sector PMI for March hit 42, logging its sharpest decline since the pandemic first began. That slowdown came after two consecutive months of recovery as soon as fresh lockdowns went into effect, says Shehzad Qazi, managing director at China Beige Book. “The bottom line for investors is that China’s consumption growth will be decided almost entirely by Covid policies for the foreseeable future, and any progress remains vulnerable to a quick reversal,” Qazi added.

“The risk of spillover measures in other cities pose downside risks to first-half GDP growth, especially if lockdowns extend well beyond April,” writes UBS Wealth Managements’ Mark Haefele in a note to clients. But within Asia, Haefele still favors Chinese equities, in part because policy makers should step up support for the economy in coming months that could buoy sentiment.

But it isn’t clear Chinese policy makers will bring in the magnitude of stimulus that may be needed. “China simply doesn’t have enough liquidity to escape its downturn right now,” Beamish says. “Even without Covid resurgence, leading indicators point to extreme weakness which we would label as recession, equivalent to the pain in 2015. Covid resurgence is simply a further blow.” The lockdowns are also causing disruptions for companies like Tesla (TLSA), whose largest manufacturing facility in Shanghai remains shut— a situation that my colleague Al Root says could impact 2022 deliveries—and earnings—if it continues.

One bright spot: These supply constraints come as global demand for stuff is beginning to ease as consumers in the U.S. and Europe start spending on services. Think restaurants, vacations and entertainment as these countries and emerging markets reopen and provide some of the needed production. That could avoid a rerun of the 2020-2021 supply chain paralysis, Beamish says.
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