Ukraine: China 'are slowly beginning to turn on Russia'
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A total of 17.5 million people in Shenzhen are now in lockdown and required to undergo three rounds of testing while major businesses in the city have shut down. The city is a key location for finance and technology with Apple supplier Foxconn among the firms forced to close plants. Other major businesses in the area include tech giants Huawei and Tencent as well as being home to one of China’s busiest ports. Following the announcement markets have responded sharply during Monday trading with Hong Kong’s Hang Seng Index falling four percent and the Hang Seng Tech Index down almost eight percent.
Susannah Streeter, Senior Investment and Markets Analyst at Hargreaves Lansdown, commented: “The rapid spread of Covid across China is now unsettling investors, with expectations that mass lockdowns will once again blight the economy with new daily cases hitting two year highs.”
Last week nine million people were also put into lockdown in the city of Changchun.
The city is widely known for car production with firms such as Toyota already having to announce suspended operations.
Analysts at Saxo Bank noted that the developments would cast “additional doubts among economists on China’s ability to meet its 5.5 percent GDP growth target when exports are expected to slow from last year’s stellar performance.”
The new wave of infections comes at a time China is already facing a number of pressures on its economic outlook.
Craig Botham, Chief China+ Economist at Pantheon Macroeconomics, commented: “Soaring energy prices are adding to cost pressures for firms, and related fuel shortages are disrupting logistics.
“Households, meanwhile, face rising unemployment, and even those with jobs are finding it harder to spend money as Covid cases—and restrictions—rise once again.”
The sluggish outlook for China’s economy has led to speculation the central bank will cut interest rates this week in a bid to try to stimulate growth with comments supporting this coming from former central bank adviser Yu Yongding.
Mr Botham explained: “The price shock from global commodities undermines the growth outlook, piling pressure on China’s firms, and so, if anything, it will warrant more easing, not less.
“Firms will not be allowed to pass costs on to consumers, but many lack the margins to absorb them easily.
“The answer—temporarily, anyway—is to prop up those firms with tax cuts, fee reductions, and cheap borrowing.”
China is also having to navigate an increasingly complex geopolitical landscape given Russia’s invasion of Ukraine and resulting sanctions.
China has been seen as a potential source of help for Russia which has been largely cut off from many of the world’s other major economies.
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With around half of Russia’s foreign currency reserves in dollars and euros frozen, Russia could look to use its reserves in yuan while also using China as an export market for gas and oil.
Talks are being held on Monday between the US and China in Rome during which China will be warned of the economic penalties of helping Russia evade sanctions.
US National Security Adviser Jake Sullivan, who will be meeting Chinese diplomat Yang Jiechi, warned the US would “not allow… there to be a lifeline to Russia from these economic sanctions from any country.”
China meanwhile has refrained from calling the conflict in Ukraine an invasion, sticking to a policy described as ‘pro-Russian neutrality’.
Chinese premier Xi Jinping has however called for “maximum restraint” between the two sides.
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