The stronghold of Chinese technology is “closed”… and supply chains with a new crisis

The Chinese city of Shenzhen produces smartphones and video games for the whole world, in huge skyscrapers, symbols of modern China. Today, China’s Silicon Valley lives under stone, which would catch the entire economy with a cold.

In the face of the most serious pandemic in two years, the southern city council has halted public transportation and urged its 17.5 million residents to stay home.

Companies have been asked to resort to remote work. It is an impossible choice for hundreds of factories in the city, whose closures are sure to disrupt global supply chains.

But what is the weight of Shenzhen in the Chinese economy?

Shenzhen is the third Chinese city in terms of GDP being the headquarters of the two giants “Huawei” for phones and the fifth generation of the communications network, and “Tencent” for the Internet and video games, and it is adjacent to the semi-autonomous territory of Hong Kong, so any long-term stone will be It hurts.

“For China, Shenzhen is a manufacturing hub and technology hub,” Hong Hao, of financial services firm Bocom International, told AFP.

Taiwanese giant Foxconn, a major supplier to Apple, was forced to suspend its activities in Shenzhen. Also, other companies, such as the Chinese manufacturer Netac (hard drives and memory cards) have discontinued part of their production.

“Economy disrupted”

Electronic and mechanical products account for about 80 percent of the city’s exports.

“The stone is a big event and I think we’re not yet fully aware of its impact,” Hong says.

Shenzhen is often called “China’s Silicon Valley” due to the number of high-tech companies it has and the local business environment that facilitates their development.

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These state-of-the-art companies attract some of the best Chinese and foreign professionals, as well as many young graduates looking to work for the big names in the sector.

“domino effect”

Xu Shang, an economist with Pinpoint Asset Management, says consumption is “rapidly and severely affected” during the confinement, followed by production and investment.

“It’s the domino effect,” Hong Hao says, explaining that other parts of China that depend on goods produced in Shenzhen may also be affected, “and their productivity can be affected.”

There are at least six companies listed on Apple’s supplier list in Shenzhen, along with others such as Chinese electric car maker BYD.

Restrictions across the country could weigh on China’s 2022 GDP growth target of around 5.5 percent, the lowest in decades.

And the port?

Shenzhen also has one of the world’s largest ports, Yantian Port, through which 10.5 percent of containers used by China’s foreign trade pass, according to economic experts.

During previous epidemic waves, the port was forced to suspend loading and unloading of containers, causing delays.

Today, the current shutdown reinforces concerns about already high freight rates.

The port appears to be still operating, but disruptions are expected if employees are found to have tested positive for the coronavirus.

The Chinese port and city of Shenzhen are important to the global economy

Economists say the effect will depend mainly on the duration of the stone.

An analyst at Australia’s New Zealand Bank, Shaopeng Sheng, estimates that the authorities will be able to contain the Omicron mutant within about a month, as was the case in previous outbreaks.

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“The shock will not last long,” he says, adding that it should not have long-term repercussions.