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China’s Guangdong COVID-19 restrictions to hit exports near-term

Pandemic-related restrictions imposed in Guangdong, China in May are expected to slow down exports in the near term, as the province account for nearly a quarter of the country’s total shipments abroad.

The province is an industrial hub in southern China, producing various products from toys to textiles to cars – all major downstream industries of petrochemicals.

“Shipping bottlenecks in Guangdong will affect near-term trade flows. We expect the disruptions will be short-lived, but they present additional risk to global supply chains,” said Tommy Wu, lead economist at the research firm Oxford Economics in a note.

Guangdong accounts for 24% of China’s exports and 19% of its imports, according to Oxford Economics.

Cargoes going in and out of Guangdong are facing logistics problems, with lockdowns in place in some of the province’s communities following a recent spike on COVID-19 cases in its capital Guangzhou.

A severe power outage which could last into September is also gripping China’s southern region, affecting overall production.

“Strict containment measures were reimposed in Guangdong in May to fight the rise in Covid [coronavirus disease] cases, causing some disruptions to production bases and severe delays in some of the busiest container ports in China, including the Yantian port in Shenzhen,” Wu said.

“That said, we think the disruptions will likely be short-lived, though the interruptions could cause further delays to global supply chains and add pressures to shipping costs,” Wu said.

China’s total exports in May posted a 27.9% year-on-year growth, representing a slowdown from the previous month’s 32.3% pace.

In the first five months of 2021, China’s cumulative exports were up by 40.2% year on year. January-February shipments surged by more than 60%, coming from a deep slump in 2020.

“We expect global demand for electronics and non-pandemic related products to support China’s export outlook, though the overall momentum will slow amid reduced demand for protective gear (part of textiles) and automated data processing machines (laptops and computers),” Oxford Economics’ Wu said.

Exports of personal protective equipment (PPE) and some medical supplies and equipment, meanwhile, are expected to fall as global coronavirus cases decline and as the US and European economies re-open.

“However, demand from emerging markets may hold up for longer considering the slow pace of vaccinations,” Wu said.

Several countries in Asia, including India, fall under this category nearly 18 months since the coronavirus outbreak started in central China.

China – which is the world’s second biggest economy – has staged a strong recovery, having exited a paralysing lockdown much earlier compared with the rest of the world.

“China’s role in global supply chains hasn’t diminished,” Wu of Oxford Economics said.

“While further decoupling with China by developed countries is concerning, we think the pressure to reduce China’s role in global supply chains is mainly focused on the most sensitive IT (information technology) sectors,” Wu said.
Source: ICIS, Pearl Bantillo, https://www.icis.com/explore/resources/news/2021/06/15/10651811/china-s-guangdong-covid-19-restrictions-to-hit-exports-near-term

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