China’s zero-Covid restrictions will affect the global recovery of the supply chain, as any small disruption in the country is likely to lead to “wave effects” around the world, according to the head of shipping at HSBC.
The pandemic has revealed “how slim the supply chain has become. And there is a small margin of error,” said Parash Jain, global head of shipping and port equities at HSBC.
“China’s great importance when it comes to global trade means that every little disruption in China will have a ripple effect across the supply chain,” Jain told CNBC’s “Squawk Box Asia” on Monday.
China, the world’s second largest economy, has doubled its zero-Covid strategy due to recent increases in infections across the country.
Covid incidents have been reported in the main port cities of Shenzhen, Tianjin and Ningbo as well as the industrial hub of Xi’an, resulting in barricades and curbs in the major port hubs.
China reported 58 new Covid-19 cases as of Monday, according to the national health authority. The National Health Commission said in its daily update that 40 of the new cases were local infections, while the remaining 18 come from abroad.
Despite the fact that Beijing has a relatively low number of cases compared to many other places in Asia, Beijing has clung to its zero-covid approach.
China has a 7-day moving average of 0.04 daily cases per year. million people per January 30 compared to 568.8 for Japan, 290.41 for South Korea and 180.35 for India, according to Our World in Data.
China has the infrastructure in place to relieve quickly – whether in the port or in the supply chain, Jain said.
“But the chaos created because of this will eventually have an impact on the other side of the ocean,” he added. “That is why, as long as China maintains this very strict zero-Covid stance, we cannot rule out a disruption from time to time as the year progresses,” he added.
Since the pandemic began in early 2020, Beijing has maintained a zero-tolerance Covid policy, sometimes closing entire factories or ports down as a result of a single case. It also involves strict quarantines and travel restrictions – whether in a city or with other countries – to control outbreaks.
Restrictions aimed at restricting Covid-19 have affected manufacturing and shipping activities globally, exacerbating the supply chain crisis.
There have been renewed concerns that the highly infectious omicron variant could also provide another blow to the shipping industry.
As a result of the pandemic, some of the major container shipping companies are trying to “get a bigger grip on the entire supply chain,” Jain said.
“There is investment in logistics on the land side. There is investment on the terminal side. But I think some of these infrastructures, especially in the developed market, were long awaited.”
“From the shipper’s perspective or from the customer’s perspective, I think the comfort they’ve had over the last many decades in maintaining inventory just in time,” I think these disruptions would probably make them think again, added he.
– CNBC’s Weizhen Tan contributed to this story.