China’s 2022 Covid lockdown inflation risk is greater compared to 2020

China’s exports of cars and components more than doubled in 2021 from a year ago, exceeding 30% growth in China’s exports in general, Bernstein analysts found.

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BEIJING – China’s latest Covid lockdowns are a greater risk of global inflation today than they were in 2020, Bernstein analysts said.

This is because the world has become more dependent on Chinese goods since the pandemic began, analysts said in a note on April 8.

China’s share of global exports rose to 15.4% in 2021, the highest since at least 2012.

China’s exports have increased in the last two years as the country was able to control the first Covid outbreak within a few weeks and resume production, while the rest of the world struggled to curb the virus. China has maintained its zero-Covid policy, while other countries have eased controls in the past year.

Over the past few weeks, mainland China has tackled its worst Covid wave in two years with shutdowns and travel restrictions that foreign business leaders have described as tougher than in early 2020. Home-stay bookings and virus-testing requirements have particularly affected coastal economic centers like Shanghai.

“We believe the macro impact of China lockdowns can be quite high and something that the market has not yet appreciated,” Bernstein’s Jay Huang and a team said in a report.

Compared to pre-pandemic levels, Shanghai export container costs are five times higher and air freight rates are twice as high, the report notes, noting similar loads on the supplier’s delivery time. “Therefore, there would be higher exports of inflation, especially to China’s major trading partners, but at the same time delay China’s own demand recovery.”

As a result of disruptions in the supply chain, the Chinese electric car company Nio announced production stoppages over the weekend, with some production resuming on Thursday. German carmaker Volkswagen said their factories on the outskirts of Shanghai and in the northern province of Jilin remained closed through at least Thursday.

Given that these recent shutdowns come at a time when global supply chains are already strained … we believe that the impact of this shutdown could be much higher on global inflation and growth prospects compared to what we saw back then. in 2020.

Bernstein’s analysis found that China produces the bulk of the overseas demand for containers, ships, rare earths and solar modules – along with the majority of mobile phones and PCs.

Chinese factories are no longer just completing the final assembly of these electronic products, but are also manufacturing components such as LCD panels and integrated circuits, the report said, pointing to a faster growth in 2021 in exports of these parts.

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 out Monday.

China, a growing car exporter

Since the pandemic began, China has become a significant producer in the automotive industry, particularly in the electric vehicle supply chain, the Bernstein report said.

Analysts noted how exports of cars and components grew on average 119% in 2021 from the previous year, surpassing the 30% growth in China’s exports overall. The country accounts for about 74% of global battery cell production, the report said.

China is the world’s largest car market and began promoting the development and purchase of electric vehicles in the last many years, primarily through subsidies. Foreign car manufacturers attracted to the market have therefore started launching electric vehicles to China in the last few years.

Now, Tesla, BMW and other automakers are increasingly manufacturing electric vehicles in China to export to other countries, the Bernstein report said. Including fuel-powered cars, Chinese state-owned automakers SAIC and Chery are the largest Chinese exporters of passenger cars by volume, the report said, noting a growing sales of China-made cars to Chile, Egypt and Saudi Arabia.

Although the report did not discuss the specific impact of Covid lockdowns on auto-related supply chains, analysts pointed out that a number of Korean and Japanese automakers were facing production disruptions in 2020, when Covid forced Wuhan to shut down.

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In March, passenger car exports rose 14% from a year ago to 107,000 units, with new energy vehicles accounting for 10.7%, according to the China Passenger Car Association. The report noted the impact of external uncertainty and declines in exports to Europe.

China car exports accounted for approx 3.7% of overseas car sales in 2021, albeit an increase from less than 2% in the previous two years, the Bernstein report said.

– CNBC’s Michael Bloom contributed to this report.

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