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China's new Covid lockdowns are another threat to the economy

London (CNN Business)Russia's war in Ukraine is roiling the global economy as policymakers race to get high inflation under control. But China's response to its worst outbreak of Covid-19 in two years is a reminder that the conflict isn't the only risk to the recovery.
What's happening: The world's second-largest economy is pushing ahead with its "zero-Covid" strategy, even as many other governments decide it's time to learn to live with the virus.
Shenzhen, an important tech hub, has entered a weeklong lockdown after the city recorded 66 positive cases on Saturday. All businesses except those deemed essential have paused operations or have implemented working from home. Shanghai, China's largest business center, has also imposed stringent measures following a spike in cases, closing schools and movie theaters and restricting travel into the city.
Who gets hit: Foxconn, one of Apple's biggest suppliers, has suspended its operations in Shenzhen, where it has two major campuses. It said Monday that the date factory work will resume will "be advised by the local government."
The Taiwanese company said it had shifted production to other sites to "minimize the potential impact" from the disruption, but didn't specify which locations would take on extra work.
Uncertainty around Foxconn's production is one sign of how China's response to the jump in coronavirus infections will ripple around the world. The country recorded 2,125 local cases on Sunday across 58 cities.
Lockdowns in China could further drive up container shipping costs, which remain extremely high, and scramble global supply chains that are still trying to sort through pandemic-related delays.
"If there is a case found in the Yantian port [in Shenzhen], then there could be a port suspension for at least two weeks," economists at ING told clients Monday. "That will then affect exports and imports of electronic parts and goods."
That could make inflation even worse. Spending inside China, an important engine of the country's growth, could also be affected by a new wave of Covid restrictions.
"This is certainly the worst virus situation in China since the Wuhan lockdown, and threatens the growth outlook as the domestic consumption will take another hit," Commerzbank economists Hao Zhou and Bernd Weidensteiner said Monday.
Remember: China's growth target of about 5.5% this year was already its lowest in three decades. The country's economy expanded 8.1% in 2021, but the pace of growth dropped sharply in the final months of the year.

Mar 15, 2022 13:04
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