"The sheer importance of China when it comes to global trade means that any small disruption in China will have a ripple effect across the supply chain."
China's zero-Covid restrictions will impact global supply chain recovery as any small disruption in the country will likely lead to "ripple effects" across the world, according to the head of shipping at HSBC.
The pandemic has revealed "how lean the supply chain has become. And there is little margin of error," said Paresh Jain, global head of shipping and ports equity research at HSBC.
"The sheer importance of China when it comes to global trade means that any small disruption in China will have a ripple effect across the supply chain." China, the world's second-largest economy, has doubled down on its zero-Covid strategy due to recent spikes in infections in the country.
Covid cases have been reported in the key port cities of Shenzhen, Tianjin and Ningbo, as well as the industrial hub of Xi'an, resulting in curbs and lockdowns in the largest port hubs. China reported 58 new Covid-19 cases on Monday, according to the national health authority. The National Health Commission in its daily update said 40 of the new cases were local infections, with 18 coming from overseas.
Despite having a relatively low number of cases compared to other places in Asia, Beijing has clung to its zero-Covid approach.
According to Our World in Data, China has a 7-day rolling average of 0.04 daily cases per million people as of Jan. 30 compared with 568.8 for Japan, 290.41 for South Korea and 180.35 for India.
China has the infrastructure in place to quickly decongest — whether it's at the port or in the supply chain side, said Paresh Jain.
"However, the chaos created because of this will eventually have an impact on the other side of the ocean." "Therefore, as long as China maintains this very strict zero-Covid stance, we cannot rule out a disruption from time to time as the year progress."
Since the pandemic began in 2020, Beijing has maintained a zero-tolerance Covid policy, sometimes, as a result of a single case, shutting down entire factories or ports. It also entails strict quarantines and travel restrictions — whether within a city or with other countries — to limit outbreaks.
Restrictions aimed at controlling Covid-19 outbreaks have impacted manufacturing and shipping operations globally, exacerbating the supply chain crisis.
There have been renewed concerns that the highly infectious omicron variant could also deal another blow to the shipping industry.
"As a result of the pandemic and restrictions, some of the large container shipping lines are trying to get a greater hold on the entire supply chain," said Jain
"There are investments on the land side logistics and investments on the terminal side. But, I think some of those infrastructures, particularly, in the developed market, were long overdue."
"From the shipper's perspective or from the customer's perspective, I think the comfort that they had over the last several decades of maintaining just in time inventory, I think that these disruptions probably would make them think again," he added. By Sumathi Bala Source: https://www.cnbc.com/ — CNBC’s Weizhen Tan contributed to this story.
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