The Shanghai lockdown and its disastrous economic impact

During the first half of this year, the measures taken against the COVID-19 pandemic had a considerable impact on the Chinese economy. Shanghai, China’s largest city, has been hardest hit. The city-wide lockdown that lasted more than two months is unprecedented in Shanghai’s urban economy, social development and urban governance. Such an experience will be part of the indelible memory of the city.

China as a whole, including Shanghai, is now gradually recovering from the impact of the pandemic. Efforts have been made to stabilize the economic market and to gradually restore the vitality of urban commerce and employment. From an economic perspective, the release of Shanghai’s second quarter economic data has shown us the magnitude of the economic impact of the measures taken to combat COVID-19.

According to data released by the official website of the Shanghai Municipal Bureau of Statistics on June 17, in May 2022, Shanghai industrial enterprises above the designated size reached a total industrial output value of RMB 234.124 billion, a reduction of 27.6% compared to the same month. Last year. The ratio of industrial production to sales 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 21.2% compared to the same period last year. Among the top three investment areas, investment in urban infrastructure fell 41.3% year-on-year; industrial investment fell by 22.1% and investment in property development by 18.0%. Among the city’s three major industrial investments, investment in primary industry fell 57.3% from the same period last year, while investment in secondary industry fell 22%. .1%. At the same time, investment in the tertiary sector fell by 21.0%.

Regarding consumption, based on the key indicator of total retail sales of consumer goods in Shanghai, total social consumption in April and May fell 48.3% and 36.5% respectively. one year to the next. The total social consumption in January-April and January-May was RMB509.925 billion and RMB604.754 billion, respectively, down 14.2% and 18.7% year-on-year. In terms of consumable food products, total sales in May were RMB 27.374 billion, down 14.2% year-on-year; total sales from January to May were RMB 142.781 billion, down 10.7% year-on-year. In terms of apparel and apparel, sales amounted to RMB 23.583 billion in May, down 31.5% year-on-year; from January to May, it was 146.177 billion yuan, down 17.8% year-on-year. In usable products, sales were RMB 42.632 billion in May, down 45.6% year-on-year; from January to May, it was RMB 301.222 billion, down 21.7% year-on-year. As for petroleum products, sales amounted to RMB 1.239 billion in May, down 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 has exerted a large impact on production and consumption activities. According to the latest data on new vehicles with compulsory circulation insurance, the sales volume of new vehicles in Shanghai in May was 2,603, a sharp drop of 95.19% from the same period in 2021. From January to May, the cumulative sales volume of the Shanghai auto market reached 150,000 units, down 51% year on year.

Regarding foreign trade, Shanghai is an important foreign trade city in the country, and the port of Shanghai has the largest container throughput in the world. Data from the Shanghai Municipal Bureau of Statistics showed that in April, Shanghai’s total foreign trade import and export volume was RMB 219.149 billion, down 36.5 percent from the same month in April. ‘last year. Among the figures, exports stood at RMB 69.596 billion, down 43.8% year-on-year. Meanwhile, imports stood at 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 percent over the same period last year. Based on Shanghai Customs’ estimate, imports and exports in April fell 41.6% year-on-year, of which exports fell 45% and imports fell 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 decreased by 2% year-on-year. Data from the China Ports Association showed that in April, Shanghai Port’s container throughput was 3.085 million TEUs, up 82.4 percent from the same period last year. Since May, operating volume has continued to rebound, with an average daily operating volume of 112,000 TEUs.

Figure: Evolution of Shanghai economic statistics in recent years

Source: Shanghai Municipal Bureau of Statistics, plotted by ANBOUND

As for prices, in May this year, consumer prices in Shanghai rose 4.6% year-on-year. Among them, the price of consumer goods increased by 7.5% and the price of services by 1.4%. In May, food, tobacco and alcohol prices increased by 13.1% year-on-year, while the prices of vegetables, edible mushrooms and eggs increased by 50.8% and 52% respectively. .3% (59% and 53.4% ​​in April). Prices for dried and fresh melons and fruits and aquatic products increased by 35.9% and 19.6% respectively and the rise continued to increase. On the other hand, the price of livestock and meat went from low to high, up 3.7%. It is worth pointing out that behind the changes in price data in May, one must see not only the sharp rise in daily necessities but also the drop in prices caused by the drop in consumption of certain commodities under the lockdown.

Based on tracking by ANBOUND’s macro research team, due to Shanghai’s lockdown from March this year, the depth and duration of the decline in the city’s main economic data has far 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 drugs in China, and the understanding of COVID-9 after two years of the pandemic, it must be admitted that the economic downturn of Shanghai’s first five months amounts 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 citizens will better discern the cost of strict public policies. To this end, in the formulation and implementation of future policies, relevant departments should weigh public policies more carefully.

Conclusion of the final analysis:

Shanghai is China’s largest city, 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 rate of severe illness, high death rate, and high hospitalization rate), it would not be appropriate for Shanghai to implement a large-scale, long-term lockdown again in the future. The enormous cost resulting from such a measure will be unbearable not only for the city, but also for ordinary people and for the whole country.