China’s zero-Covid restrictions will impact global supply chain recovery as any small disruption in the country is likely to cause “ripple effects” around the world, according to HSBC’s head of shipping.
The pandemic has shown “how lean the supply chain has become. And there’s little margin for error,” said Parash Jain, Global Head of Shipping and Ports Equity Research at HSBC.
“The sheer importance of China in world trade means that any small disruption in China will have an impact on the entire supply chain,” Jain told CNBC’s Squawk Box Asia on Monday.
China, the world’s second largest economy, has doubled down on its zero-Covid strategy amid recent spikes in infections across the country.
Covid cases have been reported in the main port cities of Shenzhen, Tianjin and Ningbo, as well as the industrial hub Xi’an, leading to lockdowns and restrictions in the largest port centers.
China reported 58 new Covid-19 cases on Monday, according to the national health authority. The National Health Commission Its daily update said 40 of the new cases were local infections, with the remaining 18 coming from overseas.
Although Beijing has a relatively low number of cases compared to many other places in Asia, it has stuck to its zero-Covid approach.
China has a 7-day rolling average of 0.04 daily cases per million people as of Jan. 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 to quickly clear congestion — whether at the port or on the supply chain side, Jain said.
“However, the chaos that has been created will eventually have an impact on the other side of the ocean,” he added. “Therefore, as long as China maintains this very strict zero-Covid stance, we cannot rule out a disruption from time to time throughout the year,” he added.
Since the pandemic began in early 2020, Beijing has had a zero-tolerance policy towards Covid-19, sometimes shutting down entire factories or ports for a single case. It also includes strict quarantines and travel restrictions – whether within a city or with other countries – to control outbreaks.
Restrictions to contain Covid-19 have impacted manufacturing and shipping operations worldwide, exacerbating the supply chain crisis.
There were renewed concerns that the highly infectious Omicron variant could also deal another blow to the shipping industry.
As a result of the pandemic, some of the big container shipping companies are “trying to get a tighter grip on the entire supply chain,” Jain said
“There are investments in landside logistics. There are investments on the terminal side. But I think some of that infrastructure, particularly in developed markets, was long overdue.”
“From a shipper’s perspective, or from a customer’s perspective, I think that the convenience they’ve had over the last several decades of holding just-in-time inventory, I think that this disruption would probably give them food for thought.” , he added.
– CNBC’s Weizhen Tan contributed to this story.