![]() For these industries, the latest series of events is just one more negative aspect of continuing to do business in China. In contrast, in industries that do not have to be located in China and are able to relocate overseas if conditions are right (for example, final assembly of tech products), skyrocketing production costs and labor shortages in addition to an increased focus on economic security have already prompted firms to begin relocating overseas. While these industries did suffer significantly as a result of the lockdown, the difficulty in relocation overseas means that we are unlikely to see any immediate relocation of production hubs offshore due to the COVID zero policy. Meanwhile, automobiles and other goods for which China is a leading market must be manufactured locally in order to maintain market share. In electronics, for example, China boasts a domestic industrial chain for parts and materials whose scale and density is unparalleled anywhere else in the world, so for electronics manufacturers, relocating production overseas is no mean feat. The way that labor is divided internationally suggests that the impact of the lockdown on Chinese and overseas businesses will differ depending on the industry in question. Shanghai’s lockdown was so strict that those in other countries might well describe it as “bizarre.” Meanwhile, the process by which the COVID-19 pandemic was allowed to be come so serious may be described as “manmade.” Let us now look at the effects of these events on the global economy. While not as drastic as the Shanghai lockdown, the capital Beijing also implemented stringent COVID regulations that caused its economy to shrink by 2.9% against the year before. In fact, China’s major cities all took a major hit. Shanghai was hit particularly hard, falling 13.7% against the same period the year before, while Jiangsu and Zhejiang provinces recorded negative 1.1% growth and 0.1% growth, respectively. The slowdown affected the entire east China region that forms the heart of the nation’s economy. GDP for the April–June 2022 quarter, which was announced by the Chinese statistics bureau on July 17, grew by a mere 0.4% against the same period the year before, marking a significant slowdown from the 4.8% growth recorded in the January–March quarter. However, the damage caused by the lockdown was too severe to be easily remedied. As a result, factory production and shipping volumes have increased steadily since May. In response to this state of affairs, the Chinese government implemented a raft of policies in April aimed at facilitating the movement of goods and shoring up the supply chain, including a “whitelist” of 666 companies whose products-which include automobiles, medical supplies, electronics, and everyday essentials-would receive preferential treatment. In Japan, disruptions to shipments of Chinese parts forced manufacturers of cars, appliances, and electronic devices to reduce operating hours or find other suppliers. The world’s largest container port, Shanghai serves as a kind of main artery linking the Chinese economy to the global economy, so the effects of the port shutdown spread down the supply chain to the global economy. Expressways, container ports, and other distribution infrastructure ceased to function over a wide area, paralyzing the Chang Jiang Delta that forms the heart of China’s economy. The lockdown caused both life and economic activity in Shanghai to grind to a halt, as it had in Wuhan two years earlier. ![]() While the two-month lockdown ended on June 1, its effects were profound. In Shanghai, daily infections exceeded 20,000 and lockdowns prevented the city’s 24 million residents from shopping for essentials. ![]() These lockdowns highlighted the side-effects of China’s strict isolation policy. ![]() At the end of 2021, Xian went into lockdown, followed by Shenzhen, the Chinese equivalent of Silicon Valley, in March, and Shanghai, China’s largest business center, in April. However, the emergence of the highly infectious omicron variant in late 2021 and early 2022 rendered this “winning strategy” unable to contain the spread of infection, and large clusters were soon being recorded. The government’s policy of tackling even small clusters with wide-scale lockdowns, sometimes of cities of 10 million people, is known as “COVID zero.” While the approach may have appeared excessively strict to those elsewhere, it has become established as China’s “winning strategy” against COVID. The Xi Jinping government has responded to the global COVID-19 pandemic by locking down China’s cities and tracking infections exhaustively.
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