There are supply chain disruptions, shutdowns, travel restrictions. Your economy inevitably takes a hit. This is why the latest outbreak in china will worry xi Jinping. It is in shanghai. On Sunday the city reported more than 3 400 cases at 70 percent of the national caseload. China being China is overreacting, they've announced a two-phase lockdown. How does that work?
First, the city will be split into the Pudong district in the east and the Puxi section in the west. The lockdown will work in phases, until Friday the eastern districts will be locked down after that western districts. Now, these areas are very different from each other. The east includes the airport and the financial district sort of like shanghai's engine. The west is home to residential complexes plus the famous riverfront. Now, this is already a major climbdown by china, now they had a zero COVID strategy. They use city-wide lockdowns everything was shut, well not in shanghai, here they're using staggered lockdowns.
why is that? To protect their economy. Shanghai is home to 25 million people, it makes up 3.8 percent of china as GDP so if shanghai shuts down china slows down that is the bottom line. The staggered lockdown is an effort to avoid this to prevent a city-wide lockdown but it's not a foolproof idea even now china's GDP is expected to shrink by 0.4 percent and that's the issue with lockdowns, full, partial, alternate, staggered, it doesn't matter any sort of lockdown will hurt your economy, plus the logistics.
How do you split a city like shanghai in two apparently using a river? If you live on the east bank you are locked down, if you live on the west you're not. To implement the system china has blocked bridges and tunnels, basically, you cannot cross the river as usual. There was no warning from Beijing, so naturally, people panicked they stocked up on groceries they bought medicines but the uncertainty is fueling fears.
What if the cluster grows? what if the lockdowns become harsher? Residential areas are barricaded, delivery agents are walking around in PPE kits. It's almost like a ghost town a flashback to 2020 and this lockdown could also hurt the global economy like I said shanghai is an economic powerhouse, the second richest city in China, it is also well integrated into the foreign markets. More than 61,000 enterprises in shanghai are backed by foreign firms.
61,000 we are talking about factories assembling units, all of them will be affected factories and assembling units and other enterprises. Take tesla, for instance, their factory in shanghai has been shut for four days which means more delays, more disruptions, and possibly higher costs. Shanghai is also home to the largest port in the world but so far China has decided to not shut it down. so clearly zero COVID has a limit and that limit is the Chinese economy just to be clear china is not the only country dealing with a new outbreak Europe is also struggling but unlike china, Europe has changed its strategy from zero COVID to living with COVID.