As the "Factory of the World" Closes Its Doors, the Global Economy "Shakes"

Impact of China’s Strict Lockdowns Extends from Small US Manufacturing Plants to Australian Tourist Destinations
Global Giants like Apple and Tesla Also Helpless
Concerns Over Impact on Asian Countries like South Korea with High Export Dependence

[Image source=AP Yonhap News]

[Asia Economy Reporter Kim Hyunjung] Bison, a school sports equipment manufacturing and installation company based in Lincoln, Nevada, USA, has halted all operations due to the inability to procure electronic components including switches from China. Nick Kusik, CEO of the company, lamented, "A $200 (about 250,000 KRW) parts issue is delaying a $100,000 project."

At Bridestowe, the world’s largest lavender farm in Tasmania, Australia, the influx of approximately 85,000 Chinese tourists annually has completely stopped. Robert Ravens, Managing Director of the farm, said, "While the number of international visitors is recovering, Chinese tourists are nowhere to be seen," adding, "It seems difficult to recover in the short term."

The economic slowdown in China caused by the zero-COVID policy is impacting places worldwide, from small factories in the US to tourist spots in Australia. On the 12th (local time), The Wall Street Journal reported that as the ‘world’s factory’ shakes, the pain is spreading globally.

According to the International Monetary Fund (IMF), China accounted for 18.1% of the world’s Gross Domestic Product (GDP) last year. This figure is behind the ‘economic superpower’ United States (23.9%) but surpasses the European Union’s 27 countries (17.8%). Based on manufacturing output (2020, UN), China accounts for one-third of the world’s total. Economists predict that economic contraction will deepen in the second quarter compared to the first quarter this year, with unemployment rates expected to rise. However, China is poised to implement even stronger policies and controls ahead of the 20th National Congress (Party Congress) at the end of October, which will decide President Xi Jinping’s third term.

[Image source=AP Yonhap News]

Even global giants with relatively more capacity to respond are helpless against China’s strict lockdowns. Tesla produced and sold 1,512 vehicles at its Shanghai plant in April, a 98% plunge from 65,000 units in March. Apple recently announced that supply chain issues caused by city lockdowns in China could result in $4 billion to $8 billion in lost revenue. General Electric (GE) reported that its healthcare division is facing production and delivery problems. Neighboring Japan’s Sony and Nintendo have also warned of negative impacts on the production of their flagship video game consoles. Hiroki Toroki, Sony’s Chief Financial Officer (CFO), explained, "Due to China’s lockdowns, it has become difficult to manufacture or ship parts used in machinery."

Additionally, Australian iron ore producer Fortescue is experiencing a hit to steel demand and rising commodity transportation costs, while Rio Tinto, the world’s second-largest mining company, expressed concerns in its late April quarterly report that China’s COVID-19 lockdowns pose downside risks to short-term construction activity in China. BMW’s vehicle deliveries in China fell 9% year-on-year in the first quarter, and Adidas’s sales in China dropped 35% during the same period.

According to data from the Organisation for Economic Co-operation and Development (OECD), parts and other inputs from China account for about 1.4% of US goods exports, while the share is much higher in neighboring countries such as Vietnam (14.4%), Taiwan (6.3%), and South Korea (5.2%). The WSJ cited Goldman Sachs’ analysis emphasizing that "some Asian economies are closely linked to China’s industrial engine and are particularly vulnerable to economic downturns."

Within China, there remains strong belief that policy responses will improve the situation. On the same day, Sheng Laiyun, Deputy Director of China’s National Bureau of Statistics, said in an interview with Xinhua News Agency, "The COVID-19 outbreak has been a major shock to China’s economy," but added, "The impact will gradually lessen due to control measures and other policies, and the economy will reach a turning point toward recovery." On the same day, China’s Immigration Administration announced it would also restrict ‘unnecessary departures’ of its citizens.

This content was produced with the assistance of AI translation services.