The biggest risk to the global economy

Nearly 400 million people in 45 cities in China are fully or partially enclosed under China’s strict zero covid policy. According to Nomura Holdings, they together account for 40%, or $7.2 trillion, of the annual gross domestic product of the world’s second-largest economy.

Analysts are ringing alarm bells, but also say investors are not properly assessing how serious the impact of these ongoing isolation orders could be on the global economy.

“Global markets may still underestimate the impact, because much attention remains focused on the Russian-Ukraine conflict and US Federal Reserve rate hikes,” Lu Ting, Nomura’s chief China economist and colleagues wrote in a note last week.

Most alarming is the indefinite lockdown in Shanghai, a city of 25 million and one of China’s premiere manufacturing and export hubs.

The quarantines there have led to food shortages, lack of access to medical care, and even the killing of pets. They have also left the world’s largest port understaffed.

The port of Shanghai, which handled more than 20% of China’s cargo traffic in 2021, has come to a virtual standstill.

Food stuck in shipping containers without access to refrigeration is rotting.
Incoming cargo now sits in Shanghai shipping terminals for an average of eight days before moving on. This is a 75% increase since the recent closures began. Storage time for exports has dropped, but that’s likely because no new containers are being sent from warehouses to docks, according to supply chain visibility platform project44.

Cargo airlines have canceled all flights in and out of the city, and more than 90% of trucks supporting import and export shipments are currently out of service.

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