Markets plummet as panic grows over China’s zero Covid collapse
MMarkets fell across the world on Monday as fears of another Chinese lockdown sparked panic buying in Beijing.
About £40bn was wiped from the FTSE 100 which fell 1.9%, amid concerns over a wave of draconian restrictions to prevent the collapse of China’s zero Covid policy.
Economists have warned that the world’s second-largest economy may already be in recession, with the pain likely to spread to the rest of the world.
U.S. crude oil fell below $100 a barrel and iron fell as much as 11% on expectations of lower demand as factories around China are shuttered for weeks, potentially triggering another wave of severe shipping disruptions that will lead to shortages of goods in the West.
Germany’s DAX fell 1.5% and France’s CAC closed 2% on Emmanuel Macron’s re-election day.
Wall Street was down for much of the day, but came back into the green late as investors cheered the deal on Twitter. The S&P 500 added 0.6 pc.
Earlier in the day, the Shanghai CSI 300 fell 5% to its lowest close in two years.
China is struggling to contain a wave of omicron infections that risks ruining its efforts to keep the country Covid-free. Restrictions are already heavily imposed in Shanghai and other manufacturing hubs, and authorities announced late Monday evening that they intended to test the entire population of Beijing for Covid three times in one week.
Craig Botham of Pantheon Macroeconomics estimated that China’s economy contracted 0.5pc in the first quarter of the year and would contract another 0.6pc in this quarter, which means it is already in a recession. He expects official Chinese figures, which don’t always properly account for inflation, to show GDP stagnating in the second quarter.
Mr Botham said the China shock is “an inflationary blow waiting to happen” for the West.
This will be felt in global supply chains “because there is nothing China is not touching in terms of production. That’s it. »
He said, “You can imagine there could be some offsetting factors because if China doesn’t use shipping, it frees up that shipping for other countries, so other orders could finally arrive from Japan, Korea and Taiwan.
“But then, a month or two later, these factories in these countries are themselves dependent on inputs from China. They will see their production interrupted. It’s the kind of thing that builds up and gets worse – April, May, June, I imagine it’s going to get steadily worse, in terms of pressure on input costs and a downturn in business.
According to data from consultancy Windward, about a fifth of the world’s container ship fleet is currently stuck in congestion at global ports, with about a quarter in China.
Jacques Vandermeiren, general manager of the port of Antwerp-Bruges, said the automotive industry is particularly vulnerable to delays.
He said: “Shanghai is the biggest port in the world. It is also the port that exports different goods to the world. And especially when it comes to the automotive industry.
“The whole automotive industry will have to wait before releasing new cars. And you will already see if you want to buy a new electric vehicle the waiting time is now reduced from six or seven months to a year. This is an immediate consequence of that.
John Glen, an economist at the Chartered Institute of Procurement and Supply, said problems at Chinese ports would “almost definitely” cause problems for British manufacturers.
“It may affect the range of product choices we have in our stores,” he said, adding that an “absolute” shortage of products seemed unlikely. He said there was “no reason” for panic buying in Europe.
UK businesses are scrambling to bring production closer to home, said Martin McTague, national chairman of the Federation of Small Businesses.
He said: “One in seven businesses need to adjust their supply chains to get the goods they need or find prices they can afford.”
“This is yet another aspect of operations to worry about as they grapple with soaring utility, fuel and tax costs as well as labor shortages. “