Shanghai Lockdowns’ Effect on Supply Chains

Shipping containers are seen at the Yangshan Deep Water Port, part of the Shanghai Free Trade Zone, in Shanghai, China. (Aly Song/Reuters)

Shanghai is locking down as Covid cases rise. The measures are expected to be the most extensive lockdown in China since the Wuhan lockdowns over two years ago. Chinese authorities have ordered nonessential businesses and transportation to shut down at least until next week.

As one of the world’s largest urban areas in the world’s most populous country, what happens in Shanghai matters to the rest of the world. Shanghai is home to the busiest ocean port in the world for containerized cargo and one of the busiest airports for cargo planes.

In a service announcement today, DHL said the airport will be maintaining normal operations through the lockdowns. “The staff have been on standby at the airport since March 28 and will be there on duty until the lockdown period ends,” the announcement says. The restrictions on Pudong, the eastern part of Shanghai where the airport is located, are set to expire on April 1.

Shanghai’s port authority also said the seaport would maintain normal operations. With proper documentation and a negative Covid test, some truck drivers are still allowed to enter and exit the airport and the seaport.

Just because the ports will remain open does not mean they will be able to operate normally, however. Factories in Shanghai are shutting down, and without that production, there’s nothing to ship. As cases spread, the pool of truck drivers with a negative test will shrink as well.

Shenzhen, another global trade hub, has experienced similar shutdowns. The fallout from those was not as bad as initially feared, but that doesn’t mean there were no consequences. Eamon Barrett of Fortune explains:

The shutdown in Shanghai mirrors another citywide lockdown that took place in Shenzhen, China’s southern production hub and major port city, two weeks ago. The local lockdown stoked fears of major supply chain disruption. Apple supplier Foxconn was among the major manufacturers forced to close productions sites for several days in Shenzhen.

Curtailed operations at docks in Shenzhen slowed port procedures, too, which logistics operators warn could lead to higher shipping costs this summer as ports gradually work through the congestion.

He goes on to note that stock markets have hardly taken notice of the lockdowns. The S&P 500 and the Shanghai stock market have barely budged today. Fears of a production slowdown have driven crude-oil prices down a little today as well.

The brunt of the policies will be borne by Shanghai’s residents, of course. They began hoarding food last week in anticipation of the lockdowns. Financial-sector workers have been sleeping in their offices to avoid being denied re-entry when lockdowns start.

There are some signs that China’s zero-Covid policies won’t be sustainable with the Chinese public. Lily Kuo wrote on March 16 in the Washington Post:

Complaints from regular citizens have appeared with more regularity on the country’s heavily policed social media platforms. One user wrote Monday on the microblog Weibo that because of the sudden new lockdown measures, their family was trapped on a highway for 14 hours trying to reach the town of Wuxi in eastern China.

News that a 4-year-old girl in Changchun, one of the cities under strict lockdown, had died of acute laryngitis while waiting for a negative coronavirus test to go to the hospital prompted further anger online.

“Three years. I don’t dare get sick, and don’t even talk about having children. You don’t know what they might face,” one Internet user wrote under a hashtag for the issue that had been viewed more than 40 million times in two hours.

Others complained about losses to their businesses. “I really broke down tonight and have never wanted to leave Shenzhen as much as I do tonight. Since I opened my shop on March 1, I haven’t made a single penny,” read one widely viewed comment in response to a post on WeChat by the Shenzhen Health Commission.

Xi Jinping has promised to minimize the impact of Covid restrictions on the Chinese economy. Going back to citywide lockdowns is not a step in the right direction, and it was one China was signaling it would not take as recently as a few days ago. Xi may be able to paper over foreigners’ concerns by keeping ports open and the stock market happy. But he may find his own people starting to cause problems soon if he sticks with zero-tolerance policies for Covid.

Dominic Pino is a William F. Buckley Fellow in Political Journalism at National Review Institute.