China’s role in the global economy is weakening as a result of its strict zero Covid-19 policy, according to the CEO of one of the Middle East’s major container shippers.
Speaking at DP World’s Global Freight Summit in Dubai, Till Ole Barrelet, CEO of Emirates Shipping Lines, said that China’s attempt to stamp out Covid, which includes the continued use of regional lockdowns and mandatory quarantines for international visitors, is one of several threats to the global shipping industry, alongside the potential for a recession in Europe and a slowdown in the US.
“In China it’s quite challenging now for the supply side, for factories. You don’t know if you can actually supply your goods tomorrow, or if you’re in a lockdown, whether you have enough workers. Unfortunately, if we have lockdown in Ningbo, the trucks to bring the containers to port cannot actually go to the factories and hence the suppliers can’t ship their cargo. This uncertainty is really a key concern for the Chinese economy, and we really hope that there will be a solution soon so that there is more predictabilty.”
China’s lockdowns continue
This week, crowds of people in the southern Chinese city of Guangzhou, which has seen new daily Covid-19 infections of 5000, took to the streets to protest against the local lockdowns.
In contrast with the rest of the world, which has mostly shunned lockdowns since the rollout of vaccines, China has persisted with attempts to stamp out the disease. Data released on Tuesday showed that China’s economy suffered a broad slowdown in October, with factory output growing at just 5%, and retail sales falling 0.5%, the first fall in five months.
This week, China relaxed its mandatory quaratine for inbound travellers from seven days’ quarantine to five days of quarantine at designated sites plus three days of home quarantine (“5+3”). The government also scrapped a penalty on airlines that bring in infected passengers. Barrelet said that easing of quarantine was welcome but that the shipping industry is hoping for more progress.
“For us, the ships are going there anyway but there’s no cargo, and we’ve obviously reserved the space that customers are requesting and suddenly those boxes don’t show up… China has just reduced quarantine from seven days to ‘5+3’, so that’s an improvement, and we expect further improvements because they really feel now the pinch of weakening demand. Buyers can’t go to China, you can’t visit your factories, you can’t visit your supply chains. It’s unpredictable in China right now.”
Barrelet said that global manufacturing production had shifted to Southeast Asia, with India, Vietnam, Thailand and Indonesia seeing expanded trade volumes.
“If one country does not offer stable supply chains and a lot of other countries offer that, there’s a tendency to go to that more stable supply change even if you have to pay a few cents more per product,” he said.
European recession poses threat to shipping industry
Nevertheless, Barrelet said that the possibility of a recession in Europe is one of the biggest challenges facing the shipping industry.
“We are confronted with multiple challenges. For us the biggest concern is Europe because due to high energy prices disposable income has drastically reduced and therefore consumption is reducing for goods. The US is also challenging on the consumption side but it’s less of a concern.
“I think Europe would be happy if they see growth. I think there will be a contraction, actually, and I think they’re heading right into recession. That combined with high inflationary pressures is something that is very unusual. The biggest worry right now is the EU because there’s very little positive signs. Europe has to hope there is a solution on the Russia-Ukraine conflict.”
Consumption keeps Africa moving
Nick Marro, global trade lead at the Economist Intelligence Unit, said that the global outlook is increasingly gloomy.
“When we look at economic picture we are relatively concerned. This year we’re expecting GDP growth of around 2.5% / 2.4%. That’s down from 4% before Russia invaded Ukraine and that reflects all of the effects of higher inflation, tightening in the US and EU, higher energy prices, and the impact of zero Covid in China, the shutdown of production in supply chains. Things are slowing. Heading into 2023, we’re expecting global growth of only about 1.5%. For context, that is the worst performance globally bar the pandemic in 2020 over the last decade.”
Nevertheless, while Barrelet said that the impact of the Russia-Ukraine war continues to spill over into Africa, he argued that basic consumption is keeping activity moving in the region.
“On Africa the concern is that they are heavily impacted by energy prices, which is not subsided by government to the same extent as Europe, and then you have also basic food requirements, Ukraine being one of the biggest exporters of grain. Obviously, the supply has been drastically reduced and so the prices have increased, so they’re struggling with base consumption. But still they have their first TV, their first fridge – it’s all basic consumption.
“The election in Kenya was a big concern for us but that turned out to be quite structured and stable and we saw demand being good. So Africa still has a lot of hope, it’s a growing market, an area where the population is still growing and demand is for very basic consumption goods, and with a bigger middle class there will be more consumption in the near future.”