“A very steep slope”: strangled by health restrictions, forced to lay off to survive, the bosses of Chinese SMEs see in the current deconfinement of Shanghai more a small breath of temporary oxygen than a lasting relief.
Thanks to its port, one of the largest in the world, the Chinese economic capital holds a strategic place in supply chains.
Its influence benefits a multitude of factories and small businesses in the region, which work on behalf of multinationals, such as the car manufacturer Tesla or the computer giant Apple.
The total shutdown of the metropolis in early April dealt a severe blow to local activity and, in turn, weakened the growth of the second largest economy in the world.
Thousands of SMEs have since tried to survive, like that of Mr. Zhou, which produces textiles on the outskirts of Shanghai.
The owner, who does not wish to give his full name and insists that his business not be identified, has seen his orders evaporate due to the confinement.
Sales are on “a very steep slope”, indicates the entrepreneur installed in the dynamic province of Zhejiang (east), which borders Shanghai.
“I’m going to have to fire people,” he told AFP, in a desperate search for clients.
Despite a low number of positive cases compared to many other countries, China continues to implement a zero-COVID health strategy.
It consists in particular of imposing quarantines and confinements as soon as a few cases appear.
Firmly defended by President Xi Jinping, this policy has serious repercussions on the economy, with many businesses closed, factories operating at idle and production lines very disrupted.
“I don’t know how much the confinement has made me lose,” Xu Xuebing, boss of wood supplier Sam Wood, based in Shanghai, told AFP.
The lockdown in China’s largest city has exacerbated difficulties and further strained supply chains.
Whether “downstream factories, vendors or companies, everyone is affected,” notes Mr. Xu.
Even before the Shanghai shutdown, manufacturing activity in China had already fallen in March to its lowest level in two years, harmed by confinements in the northeast, bastion of the automotive industry, and in the technology metropolis of Shenzhen (south).
The gradual lifting of containment in Shanghai, which began on Wednesday, will not necessarily be synonymous with an immediate recovery, warns analyst Zhaopeng Xing, of ANZ bank.
If mobility inside Shanghai has been restored, “restrictions remain for moving outside the city”, which penalizes exchanges, he notes.
On paper, “the reopening is good for the markets” but in reality “there is still a long way to go,” said Mr. Xing.
For many economists, the main obstacle to recovery is the continuation of the zero COVID policy and therefore the risk of new restrictions as soon as cases appear.
“Uncertainties are bad for business confidence,” warns analyst Peiqian Liu of investment bank NatWest Markets.
A lack of visibility that will be a brake on new hires in SMEs, said economist Iris Pang, of ING bank.
The urban youth unemployment rate reached 18.2% in April, according to the National Bureau of Statistics (NBS).
The economic slowdown jeopardizes Beijing’s growth target of around 5.5%, in a politically sensitive year that should see Xi Jinping reappointed as head of the Chinese Communist Party (CCP) in the fall.
Threatened by sluggish growth, the authorities have multiplied measures to support the economy in recent weeks.
Still, that might not be enough for a rebound in the third quarter, warns Natixis economist Gary Ng.
In zero-COVID China, survival now trumps profit for small entrepreneurs.
“I don’t need to make more money than my competitors. But in this difficult period, I have to hold on longer than them”, sums up Mr. Zhou, the textile manufacturer.
Reference-www.tvanouvelles.ca