The lockdown in Shanghai has negative consequences for the global economy. But just because the supply chains are bumping because of Corona and the Ukraine war, other countries cannot turn their backs on China.

Public life in the Chinese metropolis of Shanghai is slowly starting up again. After almost two months in strict lockdown, buses and trains are rolling through the deserted streets, at least in part. Four of the 20 train lines and some bus lines have been allowed to run again since Sunday. According to the authorities, anyone who wants to get in must have a negative test and a “normal” body temperature. Factories and businesses have also reopened in some parts of the city.

China had imposed rigorous restrictions from the beginning of the pandemic and was thus able to keep the number of infections at a relatively low level by international comparison for a long time. With the advent of the omicron variant, however, there were large outbreaks. The center was initially Shanghai, whereupon the city with its 25 million inhabitants was rigorously sealed off at the beginning of April – with serious consequences also abroad.

As a result of Chinese lockdowns and global ship jams, the German economy was threatened with a further aggravation of the serious delivery problems. According to the Kiel Institute for the World Economy and the Port of Rotterdam, the number of ships heading west from China has fallen. And the London shipping consultancy Drewry estimated that 260,000 containers destined for export all over the world were not loaded in the port of Shanghai in April alone.

Lockdown episodes are delayed

According to the Berlin Mercator Institute for China Studies (MERICS), the effects will be felt by both consumers and industry. German retailers sold a wide range of Chinese-made products, from electronics to furniture and clothing to toys, says Merics analyst Jacob Gunter.

Even before the Ukraine war and the lockdown in Shanghai, the industry was suffering from a major shortage of supplies. “We assume that the situation will continue to worsen in the coming days and weeks because ships that left the port of Shanghai before the closure were still arriving,” said Bertram Brossardt, CEO of the Bavarian Business Association in Munich. “We will only feel the actual consequences of the lockdown in Shanghai for some time, but then very drastically.”

The port of Shanghai is the largest in the world, and the city and its hinterland are an industrial region of global importance. According to the Mercator Institute, electronic components and computers of all kinds account for the largest share of Chinese exports of industrial components. Analyst Gunther. He cited cobalt and lithium for the production of electric car batteries as examples.

The analyst assumes that the Chinese lockdowns will have a kind of global ripple effect: “If a component supplier in Japan, Great Britain or Mexico has suppliers in China at the beginning of the supply chain, this can have an impact on their production.” The consequence would then be limited supplies for German companies that are at the end of the supply chain.

China will continue to deliver

However, there is no reason to fear that deliveries from China will come to a complete standstill: “A drop in westbound freight volumes due to the lockdown in Shanghai is to be expected, but that will be limited,” says a spokeswoman for the port of Rotterdam.

The effect of the lockdown in Shanghai and other rigid Covid restrictions in China is noticeable in Europe with a considerable delay, because a direct ship journey took 30 to 40 days before the start of the corona pandemic.

Usually several ports are called at, so that the normal transit time of a container is around 80 days. For the past two years, Covid has been messing up the timetables. According to the Alphaliner shipping database, container ships are currently on the road for an average of 101 days. This in turn means that the ships return to East Asia with a delay of at least three weeks and are then missing for the next trip to Europe.

The lockdown in Shanghai started at the end of March and was only supposed to last a few days. The restrictions have now been relaxed, but there is no sign of a return to normality. While the port of Shanghai has never stood still, transportation in and out of the port has been hit hard, the spokeswoman for the port of Rotterdam explained. And in other regions of China, too, many factories can only produce to a limited extent because staff and deliveries are blocked.

Economy without China unthinkable

For Chinese county, county, city and provincial officials, the top issue is keeping Covid out, says Merics analyst Gunter. “Many have enacted extreme restrictions to prevent entry or even transit through their jurisdictions.” Truck drivers confronted with the Covid bureaucracy often do not even start the fight for the large number of special permits required, but simply do not drive.

The Kiel Institute for the World Economy (IfW) did not find any decline in import volumes in Rotterdam or Hamburg up to last week. “The effect on the ports in the North Sea should also be limited in the coming weeks, since a traffic jam has also built up in the North Sea, a kind of buffer,” says economist Vincent Stamer.

But in mid-May, according to the IfW, the volume of freight in the Red Sea was almost a fifth lower than would have been expected in normal times. Naturally, not all ships in the Red Sea head for Rotterdam or Hamburg. But this is an indication that deliveries are missing.

The dependency on China should have become clear to Germany by now at the latest. But to decouple from China? According to experts, this could be difficult. “In the case of strategic products or raw materials, it is important to reduce them with a sense of proportion,” said Jens Hildebrandt, executive board member of the AHK. At the same time, however, trade and investment also mutually secured the population’s prosperity and served to moderate conflicts. “The dependency between Germany and China is mutual.” In order to turn away from China, new supply chains would have to be set up elsewhere, which would take a long time. “In the meantime, price increases could be expected.”

Due to the close integration of German companies in Chinese supply chains, a decoupling would “have a negative impact on the entire German economy,” Hildebrandt warned. There was a foretaste because of the Covid restrictions and bottlenecks in the supply chains. The lack of primary and intermediate products slows down German companies not only in China but also in Germany.

Unlike with Russia, which mostly supplies energy, turning away from China would be much more difficult, said Jörg Wuttke, President of the EU Chamber of Commerce. “Russia is a three-product economy. That’s all, while we source tens of thousands of products from China and create an insane number of jobs in Germany,” Wuttke said. Although Europe delivers goods worth 600 million euros to China every day, China sends exports worth 1.3 billion euros to Europe every day. In this respect, China is “more than twice as dependent”.