China is immersed in a logistical chaos that will not improve with an eventual relaxation of the Zero COVID policy

Imports and exports are beginning to feel the impact that will be fully reflected in the April figures.

As a consequence of the blockades promoted under the Zero Covid policy that has interrupted port operations and slowed down commercial activity, Chinese imports fell 0,1% compared to the previous year in dollar terms, constituting the first drop since August 2020 , with a figure well below the median forecast of an increase of 8,4%. Meanwhile, exports grew 14,7%, customs data showed, above the 12,8% forecast but slower than the 16,3% increase in the first two months of the year.

Port congestion and logistics bottlenecks worsened in March, affecting both inbound and outbound maritime traffic. The blockade of the city of Shanghai has created congestion at the world's largest port, with growing queues of ships there and at other ports trying to handle diverted shipments. The number of container ships waiting off Shanghai from April 11 was 15% higher than the previous month, according to data from Bloomberg.

The shortage of port workers in Shanghai is delaying the delivery of the necessary documentation for ships to unload their cargo, according to shipowners and traders. Meanwhile, bulk carriers carrying metals such as copper and iron ore remain stranded offshore as trucks are unable to move these cargoes from port to processing plants.

The blockades are suffered by 17,3 million truckers who keep store shelves full at the same time as they connect the country's ports with their manufacturing centers, transporting around three-quarters of the total cargo. Drivers are hampered by repeated mandatory COVID testing and the need to show negative results at multiple checkpoints.

In addition, the closure of container storage centers affects the capacity of yards in the port of Shanghai, especially for refrigerated cargo. CMA CGM, Hapag-Lloyd, MSC and ONE have warned their customers that reefer cargoes are being diverted to other ports, due to a lack of reefer connections, while Maersk is skipping Shanghai calls on some services.

Imports 

Ken Cheung, chief currency strategist for Asia at Mizuho Bank, noted that “the import side was hit hardest by the disruptions in production and logistics caused by the lockdowns.” He added that "the skyrocketing commodity prices since the start of the Ukraine war could also start to dampen demand for imports."

Imports of edible vegetable oils, meat, iron ore and auto parts had the steepest falls in the first quarter compared to a year earlier. Imports of medicines, textiles and cosmetics also fell in the first three months by less than 10%, while the value of purchases of crude and refined oil, coal and LNG soared.

In fact, purchases from the world's largest LNG importer were the hardest hit in March, falling below 8 million tonnes to their lowest level since October 2020. In addition, Chinese demand for jet fuel is forecast to fall by 25.000 barrels/day from a year earlier, a drop of 3,5%, according to the International Energy Agency (IEA) which previously expected growth of 10.000 barrels/day.

Exports

The Caixin index, based on surveys of smaller export-oriented companies, fell to its worst level since the start of the pandemic two years ago. This is because lockdowns have also stalled production in Shanghai and other cities, halting spending by millions of people cooped up at home.

Surveys show manufacturing contracted in March, with small and medium-sized businesses particularly hard hit by operating snags. Several companies, including Apple supplier Foxconn Technology Group and automakers including Tesla and Volkswagen, halted production during March. Some large manufacturers have been able to maintain their operations by adopting a so-called closed-loop system, in which employees remain on the factory premises, undergoing regular testing.

Projections 

Li Kuiwen, a spokesman for the customs administration, acknowledged that "the foreign trade environment is becoming more and more severe and complex." In fact, the World Trade Organization has warned that Beijing's strict response to the Covid outbreaks threatens to slow growth and exports from the world's No. 2 economy.

Meanwhile, Bloomberg, notes that March benefited from several trading days before the start of lockdowns in Shanghai and other cities in the middle of the month, so he forecasts the full impact of the lockdowns and logistical chaos will be fully reflected in the figures for April and possibly in May, without an eventual relaxation of the Zero COVID policy guaranteeing a speedy recovery. For his part, Zhang Zhiwei, chief economist at Pinpoint Asset Management, estimates that as the COVID-19 outbreak and disruptions in the supply chain continue, "the current weak domestic demand will be reflected in the trade data for the coming months." ”.

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