Fears of supply chain chaos grow amid rumours Beijing’s first ever Covid lockdown looms

Rumours are flying that one of China’s most crucial cities is headed for its first Covid lockdown – and it could be dire for Australia.

Rumours of a looming Covid lockdown in Beijing has sparked panic-buying among residents of the Chinese capital – and stoked fears an even greater supply chain disaster could hit the world in the months ahead.

Shanghai’s 25 million-odd residents have struggled through six weeks of brutal lockdown as China reels from the biggest Covid outbreak since the start of the pandemic in 2019.

However, while Beijing citizens have faced pandemic restrictions over the years, they’ve never been plunged into a full lockdown before.

But that could be about to change, with a growing outbreak in the city prompting spooked locals to buy up staples in preparation for the worst.

On Thursday, rumours of a looming Beijing lockdown started spreading throughout Chinese social media sites, and soon after, lengthy queues were seen outside supermarkets, with shelves stripped bare and online grocery delivery apps flooded with orders, blowing out delivery times.

The panic was so severe authorities were forced to deny the rumours, with Beijing municipal government spokesman Xu Hejian declaring during a press conference on Thursday that claims of an upcoming “quiet period” in the city were false.

“It is unnecessary to hoard food,” he said.

China is trying to contain a spike in coronavirus cases in the capital Beijing after hundreds of people tested positive for the virus in recent weeks. Picture: Kevin Frayer/Getty Images

“Residents don’t need to worry. The city’s operations won’t be affected.”

But the comments weren’t enough to quell concerns, with the yuan weakening as a direct result of the lockdown fears.

Those fears aren’t exactly unfounded, with hundreds of Beijing residents testing positive in recent weeks, and mass testing and the closure of schools and retail outlets rolled out as a result.

Gatherings have also been banned, as has inside dining in eateries, but so far, a total lockdown of the city of 22 million has not been called.

If one was announced, it would be incredibly significant, especially amid growing discontent among citizens over China’s aggressive zero-Covid strategy, which persists while most of the world is learning to live with the virus.

Impact on Australia and the world

With global supply chains already severely affected by existing lockdowns in China as well as the Ukraine invasion, a new one in Beijing would be problematic for Australia and the rest of the globe.

While factories and ports have continued operating during the current Covid wave in China, the harsh restrictions have still significantly affected deliveries for international firms.

And while the impact of a Beijing lockdown would be less severe than Shanghai’s, given it is not a major port or factory hub, experts still warn it will send shockwaves across borders.

In a recent interview with Time, Gary Ng, senior economist for Asia-Pacific at investment bank Natixis, said the effect of a Beijing lockdown would be “more symbolic” because the city is home to 52 firms in the Fortune Global 500, in addition to being the seat of government.

Rumours of a Beijing lockdown have sparked panic buying. Picture: Kevin Frayer/Getty Images

And another major impact of a Beijing lockdown would be the fact that China would be far less likely to meet its 5.5 per cent annual economic growth target – a target that was already proving tough to meet given global factors such as the war in Ukraine and skyrocketing US inflation.

‘Global chaos’

This week, Fitch Ratings confirmed that lockdowns across China, but especially the ongoing restrictions in Shanghai, were set to “intensify global inflation concerns”.

“China’s overall exports slowed sharply in April. As supply chain disruptions persist, container freight rates could remain elevated or increase,” the firm noted.

“With Shanghai handling around a fifth of China’s port volume and China accounting for 15 per cent of world merchandise exports, shortages of manufactured goods could intensify, adding to existing global inflationary pressures.

A woman crosses a nearly empty road in Beijing’s CBD days after the local government issued a work from home directive in an effort to contain a Covid outbreak. Picture: Kevin Frayer/Getty Images

“This channel is likely to outweigh the effect of slower growth in China on global inflation through a weakening of commodity demand and prices. The Shanghai lockdown comes at a time when there are few signs of improvement in global goods shortages including reported rising lead times for semiconductor deliveries.”

Those concerns were echoed by chief risk officer at Supply Wisdom John Bree, who told Fortune global companies were “beginning to panic” over the China situation.

“The downstream impact is coming, and it’ll be heavy,” he warned.

“The latest China lockdowns combined with the Russia-Ukraine war is too heavy a burden. “The global chaos is going to further exacerbate disruption and take inflation to a new level.”