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On Friday, April 1, the Chinese government began tightening restrictions for the western hemisphere of the city. It is an extension of the measures that were in force in the eastern part, which were for four days, but were also extended. Among the main consequences of the closure of Shanghai is the generation of new bottlenecks in the ports. In fact, logistics operators are already diverting cargo to alternative locations.
It is worth mentioning that the port of Shanghai has been ranked first in the world in terms of container turnover for 12 years. In 2021, the transshipment volume exceeded 47 million TEUs. According to The Wall Street Journal, the port is still operating, but warehouses are closed and there are restrictions on transport connections to the port and staff access. Air cargo traffic is already being affected by access problems at Pudong Airport, China’s main air cargo hub, which handled more than 4 million tons of cargo in 2021.
At the same time, global trade continues to be affected by the aftermath of the Russia-Ukraine conflict. Imports to Russia of all cargo types fell 62% during the month, while shipments to Ukraine fell 97%, Bloomberg reported, citing FourKites. Although Russia accounts for 5% of global seaborne trade and Ukraine only 1%.
Apart from Covid-19, the Asian country, or rather its companies could be affected by the audit dispute in the US. The problem is that Washington demands full access to the books of listed Chinese companies, but Beijing prohibits foreign inspection of the working papers of local accounting firms. If that were not enough, trading in 33 Hong Kong-listed securities was halted on Friday after several companies missed the deadline for reporting their annual results.
Among the suspended stocks can be found troubled Chinese developers such as Sunac China Holdings Ltd. and Shimao Group Holdings Ltd. If the problem is not solved, such companies could soon also be banned from MSCI Inc. stock indexes. This decision could affect hundreds of billions of dollars of passive funds that track MSCI benchmark indexes. Among the companies suspended on Friday, Sunac China and Shimao Group are members of the MSCI China index.
The good news is that Chinese authorities are considering a plan to raise several hundred billion yuan for a new fund to support troubled financial firms. While the key mandate of the new fund is to bail out financial institutions, it could indirectly help too-big-to-fail entities in other sectors, including real estate, by providing financing through banks. This would be the first fund dedicated to ensuring broad financial stability, unlike previous funds that were more focused.
The State Council said last week that China aims to complete the stability fund by September after Premier Li Keqiang announced the plan this month. The fund will be used to dissolve major risks and form part of the safety net for China’s financial system, according to the banking regulator. The government did not give details on the source of the money or the size of the fund. As part of the proposal, regulators could also increase the premium rate that some banks pay to insure their deposits. The size of the fund could be increased if necessary. The details of the plan are still being discussed and are subject to change.
