China’s Covid Lockdown and Global Trade Impact

After recent covid-19 breakouts, the Chinese government has tightened restrictions on nearly 180 million people as they are under a “zero Covid” policy. These lockdowns are more extreme when compared to lockdowns of western countries. People in China are confined to their homes where breaching quarantine rules can carry a four year prison sentence. 

Though there are concerns about the accuracy of the data below, it does look like the extreme measures have limited the number of deaths. 

Articles about their maxed out hospital system tell another story. It’s been hard to draw concrete data based on what’s been reported out of the government. Locked-down citizens have found ways to get their message out, complaining about food shortages, and children being taken away from their parents. So much dissent has been pouring out that government censors are having trouble keeping up.  

Vaccines

Chinese-made vaccines have shown relatively low efficacy after two doses (~50% efficacy) compared to mRNA-based vaccines that the west primarily used. There are currently two vaccines which both use the old method of injecting a deactivated version of the virus to boost immune response. China’s policy of self-reliance has delayed approval of foreign made vaccines, specifically mRNA. In addition to mRNA vaccines, the US has an estimated antibody rate of 58%. The price we paid was overrun hospitals, which is the issue China is trying to control. We have learned to live with the virus, but it was only after widespread distribution of our effective vaccines and mass infection. 

Economy

Since February 2022, the number of container ships sitting along the Chinese coastline has almost doubled. This accounts for 20% of the entire global container count. 

We think this problem will continue to build as lockdowns remain in place. The map above suggests that the Chinese government will restrict almost all activity to try to stamp out covid. In an effort to reduce economic impact, the central bank has lowered reserve requirements, and the government has lowered taxes. 

Some measures of control have started to loosen. Allowing certain areas of industry to operate under modified conditions could be a way to keep production going. The government started granting exceptions to certain companies, reduced the quarantine period from 14 to 10 days, and is creating factory bubbles. These bubbles are onsite closed communities where employees are allowed to work and live onsite.  

Some forecasts predict that China’s zero covid policy will remain throughout 2022. Since it’s only May, there’s a long road ahead for Chinese citizens and manufacturers. A long-term solution could be to allow mRNA-based vaccines with the combination of natural immunity. The government would probably be resistant to both solutions. 

Global production is reliant on China. As long as businesses rely on their production, we’ll continue to see supply chain drags. Creating new manufacturing hubs takes time. 

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