Since the outbreak of covid-19 in 2020, China has calmed down four rounds of local epidemics in China, large and small, with a rapid dynamic clearing policy. In February this year, a new round of local epidemic broke out again in China. The mainstream strain of this round of epidemic is Omicron virus, which is highly infectious. Due to the long duration of the epidemic and its main distribution in eastern coastal provinces and cities such as Shanghai, the impact of this round of Omicron epidemic on the economy is significantly different from the previous four rounds of local epidemic.
The deep impact of the epidemic on the economy began to show signs in late March, and the real impact fell in April. In the past, four rounds of local epidemics mainly suppressed China’s demand. However, in March this year, the supply and demand of the automobile industry were weak, and the production and investment of the automobile chain were severely damaged. The impact of this round of epidemics on the supply level surfaced. In April, we may see a broader and deeper supply shock, with exports falling and production falling.
China has been fighting the epidemic for more than two years. Consumption and real estate are already weak. It is rare that exports and industrial production with high prosperity are struggling to support the economy. Industrial production and export are extremely important to the Chinese economy. Based on this, it is not too high to track the current macro-economy and give this round of Omicron epidemic a high weight.
The impact of the epidemic on China’s consumption and investment is needless to say. After all, this is the economic cost that any round of epidemic and dynamic clearing policy must pay. The reason why the impact of this round of Omicron epidemic is different from the past is that Omicron itself is infectious.
Because of the strong infectivity, all localities adhere to the policy of dynamic clearance, upgrade prevention and control measures, and strictly prevent the spread of the epidemic. Because of its strong infectivity and high population concentration and mobility in developed provinces and cities along the eastern coast, Omicron must have repeated in the eastern coastal economies and spread rapidly. The eastern coastal area is not only an important industrial production town in China, but also an area with dense ports.
Therefore, objectively speaking, this round of local epidemic shows two particularities. The virus is highly infectious and strict epidemic prevention policies coexist. The impact of the epidemic on manufacturing production and export is stronger than in the past.
At the end of March, the logistics and freight across the country cooled down. In April, the vehicle freight index of two sealed provinces and cities in Shanghai and Jilin decreased by 80% year-on-year, the “hard core” road closures across the country, the freight logistics of many provinces and cities decreased by 30%, and the policy freight logistics index at the national level decreased by 20%. Not only that, the throughput of Shanghai port has decreased by 30%, all localities have stopped production, and the power consumption and coal consumption of power plants have shrunk rapidly.
In this round of local epidemic, industrial production and goods circulation in many places across the country rarely stagnated, which is very similar to the first quarter of 2020.
Based on high-frequency data, we speculated that the export and industrial production in April were not optimistic. In April, the year-on-year growth rate of exports fell by at least 5 percentage points, and the year-on-year increase of industrial output may fall by 7 percentage points. Further considering the importance of the Yangtze River Delta centered on Shanghai to China’s economy, we calculate and find that only Shanghai’s production is constrained, and the impact will be transmitted through the industrial correlation mechanism, reducing China’s total output by 0.5 percentage points. If considering that Zhejiang and Jiangsu are impacted by the supply chain, the national total output may be pulled down by 1.85 percentage points.
In April, we will face such an economic combination – domestic demand will continue to be weak, including consumption and real estate; Rapid cooling of logistics and production; There are also exports, reduced growth rate and loss of overseas orders.
Seeing the particularity of the impact of this round of epidemic, the policy level paid close attention to the impact of shutdown caused by the epidemic, actively promoted the resumption of work and production, and tried to minimize the supply impact caused by the epidemic.
On April 16, the Shanghai Economic and Information Technology Commission issued the guidelines for the prevention and control of the epidemic situation of industrial enterprises returning to work and production, and announced the white list of the first batch of enterprises returning to work and production. On April 18, vice premier Liu he stressed that “people’s livelihood should be underpinned, freight transportation should be unblocked and industries should be recycled”.
After late April, we will welcome more policies and measures to ensure production and supply and repair the supply chain. Resumption of work and production should be the focus of recent policies and the main line of recent macro-economy. As for the effective time of supply guarantee policies and measures, we will wait and see how much production and repair can be driven in the end.
Risk warning: the epidemic situation has developed beyond expectation; The economic trend exceeded expectations; Overseas demand exceeded expectations.
