Yi Fan | Visual China Group | Getty Images BEIJING – The latest lockdown in China for Covid poses a greater risk to global inflation today than it did in 2020, Bernstein analysts said. This is because the world has become more dependent on Chinese products since the pandemic began, analysts said in a note on April 8. China’s share of world exports increased to 15.4% in 2021, the highest at least since 2012. China’s exports have risen in the past two years as the country was able to control Covid’s initial outbreak within weeks and resume production as 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 wave in two years with lockdowns and travel restrictions that foreign business leaders have described as tougher than in early 2020. Home stay orders and test requirements for viruses have particularly affected coastal financial centers such as Shanghai. “We believe that the macroeconomic impact of lockdowns in China could be quite high and something that the market has not yet priced,” Bernstein’s Jay Huang and a team said in a report. Compared to pre-pandemic levels, the cost of Shanghai export containers is five times higher and air freight rates are twice as high, the report said, noting similar pressures on supplier delivery time. “As a result, there would be higher inflation exports, especially to China’s major trading partners, but at the same time they would delay China’s own demand recovery.” Reflecting on supply chain disruptions, Chinese electric car maker Nio announced production cuts over the weekend, with some production continuing on Thursday. German carmaker Volkswagen said its plants on the outskirts of Shanghai and in the northern province of Jilin remained closed until at least Thursday. As these recent lockdowns come to a point where global supply chains are already strained … we believe the impact of this lockdown could be much higher on global inflation and growth prospects than we saw in 2020. Bernstein’s analysis found that China manufactures the majority of overseas demand for containers, ships, rare earths and solar panels – along with most cell phones and computers. Chinese factories are no longer just completing the final assembly for these electronic products, but are also manufacturing components such as LCD panels and integrated circuits, the report said, pointing to faster growth in 2021 in exports of these components. 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, according to data on Monday.
China, a rising car exporter
Since the start of the pandemic, China has become a major manufacturer in the automotive industry, especially in the electric vehicle supply chain, the Bernstein report said. Analysts observed that exports of cars and parts increased by an average of 119% in 2021 from the previous year, exceeding the 30% increase in China’s exports as a whole. The country accounts for about 74% of global battery cell production, the report said. China is the largest car market in the world and has been promoting the development and purchase of electric vehicles for the past several years, mainly through subsidies. Foreign-attracted carmakers have begun launching electric vehicles for China in recent years. Now, Tesla, BMW and other automakers are making more and more electric vehicles in China for export to other countries, the Bernstein report said. Including fuel-powered cars, Chinese state-owned automakers SAIC and Chery are China’s leading exporters of passenger cars by volume, the report said, noting rising sales of Chinese cars in Chile, Egypt and Saudi Arabia. While the report did not discuss the specific impact of Covid locks on car-related supply chains, analysts noted that some Korean and Japanese automakers experienced production shutdowns in 2020 when Covid forced Wuhan to lockdown.
Read more about China on CNBC Pro
In March, passenger car exports rose 14% from 107,000 units last year, with new energy vehicles accounting for 10.7%, according to the China Passenger Car Association. The report noted the impact of external uncertainties and declining exports to Europe. China’s vehicle exports accounted for about 3.7% of vehicle sales outside the country in 2021, down from less than 2% in the previous two years, the Bernstein report said. – CNBC’s Michael Bloom contributed to this report.
