The risk of China’s 2022 coveted lockdown inflation is greater than in 2020

Bernstein analysts found that China’s automobile and component exports more than doubled in 2021 compared to a year earlier, with China’s exports growing by 30% overall.

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BEIJING – China’s latest cowardly lockdowns pose a greater risk to global inflation today than in 2020, Bernstein analysts say.

This is because the world has become more dependent on Chinese products since the epidemic began, analysts said in an April 8 note.

In 2021, China’s share of global exports increased to 15.4%, the highest since at least 2012.

China’s exports have increased over the past two years as the country was able to control the initial covid outbreak and resume production within weeks, while the rest of the world struggled to contain the virus. China has maintained its zero-cue policy, while other countries relaxed control last year.

Over the past few weeks, mainland China has dealt with its worst cowardly wave in two years through lockdowns and travel bans, which foreign business leaders have described as tougher than in early 2020. Like Shanghai.

Bernstein’s J. Huang and a team said in a report, “We believe the macro impact of the China lockdown could be significant and something that the market is still not pricing.”

Compared to pre-epidemic levels, Shanghai export container costs are five times higher and air freight rates are twice as high, the report said, referring to similar strains during supplier delivery. “Therefore, there will be high exports of inflation, especially to China’s major trading partners but at the same time there will be a delay in recovering China’s own demand.”

Reflecting the supply chain disruption, Chinese electric car company Neo announced production shutdowns over the weekend, with some production resuming on Thursday. German carmaker Volkswagen says its factories on the outskirts of Shanghai and in Jilin’s Uttar Pradesh were closed until at least Thursday.

Given that these recent lockdowns are coming at a time when global supply chains are already under pressure … we believe that the impact of these lockdowns on global inflation and growth outlook could be much greater than in 2020.

Bernstein’s analysis shows that China makes the lion’s share of foreign demand for containers, ships, rare earth and solar modules – along with mobile phones and PCs.

Chinese factories no longer complete the final assembly for those electronic products but also manufacture components such as LCD panels and integrated circuits, the report said, pointing to a rapid increase in exports of those parts in 2021.

China’s first quarter trade data showed steady growth in exports. As of Monday, the country’s producer price index and consumer price index rose faster than expected in March.

China, a growing car exporter

Since the onset of the epidemic, China has become a significant player in the auto industry, especially in the electric vehicle supply chain, Bernstein reports.

Analysts point out how automobile and component exports grew by an average of 119% in 2021 over the previous year, surpassing the overall 30% increase in China’s exports. The country is responsible for about 74% of global battery cell production, the report said.

China is the world’s largest auto market and in recent years has begun to promote the development and purchase of electric vehicles, primarily through subsidies. Foreign automakers attracted to the market have started to introduce electric vehicles for China in the last few years.

Now, Tesla, BMW and other automakers are increasingly building electric cars in China to export to other countries, Bernstein reports. Chinese state-owned automakers SAIC and Chery Hall are the top exporters of passenger cars from China in terms of size, including fuel-powered cars, the report said, citing growing sales of Chinese-made cars in Chile, Egypt and Saudi Arabia.

While the report does not discuss the specific impact of the Covid lockdown on the auto-related supply chain, analysts point out that several Korean and Japanese automakers faced production disruptions when the Covid forced Wuhan to lockdown in 2020.

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According to the China Passenger Car Association, in March, passenger car exports rose 14% year-on-year to 107,000 units, with new-energy vehicles up 10.7%. The report cites external uncertainty and the impact of declining exports to Europe.

China is responsible for almost all car exports The Bernstein report states that 3.7% of car sales out of the country in 2021, although less than 2% in the previous two years.

– Michael Bloom of CNBC contributed to this report.

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