How recent China lockdowns are disrupting global trade supply chains

The recent lockdowns in major production cities of Shanghai and Shenzhen in China are sending shockwaves through global trade supply chains, prompting concerns about the impact on the world economy. According to a report by the International Monetary Fund, China's significant role as a major manufacturing hub means that any disruptions in production have the potential to reverberate across the globe. Michael Mard, the senior digital trade advisor at Trade Economics, shed light on the implications of these lockdowns in a recent interview with CNBC Africa. China, known for accounting for approximately 30 percent of global manufacturing output, has seen its share of global exports rise to close to 15 percent during the COVID-19 pandemic. The recent lockdowns in key industrial cities like Shanghai, Tangshan, and the Pearl River Delta are leading to a rapid decline in manufacturing capacity. While growth projections for the year remain positive, the uncertainty surrounding the duration of the lockdowns poses a significant challenge to the economy. The lack of a clear timeline for when the restrictions might be lifted adds to the uncertainty surrounding the situation. One key question that emerges from these developments is whether countries and companies will reassess their dependence on China as a major supplier. While some have been exploring near-shoring or on-shoring options in recent years, the unparalleled economies of scale in China pose a challenge to replicating its integrated logistics and manufacturing infrastructure elsewhere. With major ports like Shanghai and Guangzhou playing pivotal roles in global trade, the interconnected nature of China's manufacturing ecosystem presents a complex dilemma for companies considering shifting their supply chain strategies. Beyond the manufacturing sector, the economic repercussions of the lockdowns extend to other industries like real estate, where some companies are facing financial strain due to payment delays and financing challenges. The transport sector is also feeling the impact, with transport costs soaring as evidenced by the doubling of prices for shipping from Hong Kong to Africa by companies like DHL and FedEx. The surge in prices for fuel, whether marine bunker fuel for sea transport or aviation fuel for air transport, is adding further pressure to global logistics costs. Despite efforts by companies like DHL and FedEx to navigate the challenges, the majority of manufactured goods and services are still transported by sea, where rising fuel costs are a significant concern. The recent geopolitical tensions and conflicts, such as the Ukraine-Russia crisis, have further complicated the global logistics landscape, hinting at potentially prolonged disruptions in supply chains. As Shanghai authorities consider the possibility of lifting the lockdowns in light of decreasing COVID-19 cases, the focus remains on China's strategy to balance economic recovery with stringent public health measures. While signs of progress, such as consecutive days with no reported cases, offer a glimmer of hope, the backlog of ships waiting at Chinese ports underscores the lingering challenges in global trade supply chains. Even if restrictions were to ease in the near future, the time required to restore normalcy in the supply chain suggests a protracted period of adjustment and recovery. The interplay of economic, logistical, and geopolitical factors underscores the complexity of the current situation and the uncertainties that lie ahead.