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Inflation risk from China’s Covid lockdowns in 2022 is higher compared to 2020


Chinese auto and component exports more than doubled in 2021 from a year ago, outpacing the 30% growth in overall Chinese exports, Bernstein analysts found.

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BEIJING — China’s latest Covid lockdowns pose a greater global inflation risk today than they did in 2020, Bernstein analysts said.

Indeed, the world has become more dependent on Chinese products since the start of the pandemic, analysts said in an April 8 note.

China’s share of global exports rose to 15.4% in 2021, the highest since at least 2012.

Chinese exports have surged in the past two years as the country was able to control the initial Covid outbreak within weeks and resume production, while the rest of the world struggled to contain the virus. China has maintained its zero Covid policy, while other countries have eased controls over the past year.

In recent weeks, mainland China has faced its worst Covid surge in two years with lockdowns and travel restrictions that overseas business leaders have described as tougher than at the start of 2020. Orders stay-at-home orders and virus testing requirements have particularly affected coastal economic hubs like Shanghai.

“We think the macro impact of the shutdowns in China could be quite high and the market is not yet pricing in that,” Bernstein and team’s Jay Huang said in a report.

Compared to pre-pandemic levels, Shanghai’s export container costs are five times higher and air freight rates are twice as high, the report said, noting similar constraints on delivery times of suppliers. “Therefore, there would be a higher export of inflation, especially to China’s major trading partners, but at the same time delay China’s demand recovery.”

Reflecting supply chain disruptions, Chinese electric car company Nio announced production shutdowns over the weekend, with some production resuming on Thursday. German automaker Volkswagen said its factories on the outskirts of Shanghai and in the northern province of Jilin remained closed through at least Thursday.

Given that these recent lockdowns come at a time when global supply chains are already strained…we believe the impact of this lockdown could be much greater on global inflation and growth prospects compared to what we saw in 2020.

Bernstein’s analysis found that China manufactures the majority of foreign demand for containers, ships, rare earths and solar modules, as well as the bulk of mobile phones and PCs.

Chinese factories no longer just complete the final assembly of these electronic products, but also manufacture components such as LCD panels and integrated circuits, the report said, pointing to faster growth in 2021 in exports of these parts.

China’s first-quarter trade data showed steady growth in exports. The country’s producer price index and consumer price index rose faster than expected in March, data showed Monday.

China, a booming car exporter

Since the start of the pandemic, China has emerged as an important manufacturer in the automotive industry, particularly in the electric vehicle supply chain, according to the Bernstein report.

Analysts noted that auto and component exports rose an average of 119% in 2021 from a year earlier, outpacing the 30% growth in China’s exports as a whole. The country accounts for about 74% of global battery cell production, according to the report.

China is the world’s largest auto market and has started to promote the development and purchase of electric vehicles in recent years, mainly through subsidies. Foreign automakers attracted to the market have therefore started to launch electric vehicles for China in recent years.

Today, Tesla, BMW and other automakers are increasingly manufacturing electric vehicles in China for export to other countries, according to the Bernstein report. Including gasoline cars, Chinese automakers SAIC and Chery are China’s top passenger vehicle exporters by volume, the report said, noting growth in sales of Chinese-made cars in Chile, Egypt and Saudi Arabia.

Although the report does not address the specific impact of the Covid lockdowns on automotive-related supply chains, analysts pointed out that a number of Korean and Japanese automakers have faced service interruptions. production in 2020 when Covid forced Wuhan into lockdown.

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In March, passenger car exports rose 14 percent from a year ago to 107,000 units, with new-energy vehicles accounting for 10.7 percent, according to the China Passenger Car Association. The report notes the impact of external uncertainties and lower exports to Europe.

Vehicle exports to China accounted for approximately 3.7% of vehicle sales outside the country in 2021, although up from less than 2% in the previous two years, according to the Bernstein report.

– CNBC’s Michael Bloom contributed to this report.


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