Apple supplier Foxconn shutters factories amid Shenzhen lockdown
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COVID restrictions have come to an end in many parts of the world as governments establish "live with the virus" policies, but one nation stands out in this regard: China. The country has continued to pursue a "zero-COVID" strategy, imposing strict lockdowns and containment measures to prevent viral transmission among its population. However, a growing wave of local cases is seeing authorities double down on the policy and that's getting investors nervous about the economy:
What happened? China just placed the 17.5M residents of Shenzhen into lockdown for at least a week, which will be accompanied by three rounds of city-wide testing. All bus and subway systems were closed, while businesses, barring those that provide essential services, have been shuttered. The decision resulted in Foxconn (OTC:FXCOF), a key Apple (NASDAQ:AAPL) supplier, to halt production as the virus spreads across the technology hub. Shenzhen also features the headquarters of tech giants Huawei, BYD (OTCPK:BYDDY) and Tencent (OTCPK:TCEHY). Microsoft, Apple among top tech stocks to buy amid sell-off: Wedbush.
Similar measures are impacting Hong Kong, Shanghai and other regions as a spike in coronavirus infections leads to a worsening outbreak. The Hang Seng Index (HSI)
plunged 5% on Monday, shares in Shanghai dropped more than 2%, while the bad news keeps piling up as U.S. officials said Russia asked China for military assistance for its war in Ukraine. The developments could also compound supply chain disruptions that have contributed to a rise in global inflation.
Analyst commentary: "The COVID situation in China has deteriorated at an alarming pace over the past week, but abandoning zero-COVID now could be perceived as conceding that the strategy did not work in the first place," said Ting Lu, chief China economist at Nomura. "With the much worsening pandemic and Beijing's resolution in maintaining its [zero-COVID strategy], we believe China's 'around 5.5%' GDP growth target this year is becoming increasingly unrealistic." China sets 2022 GDP growth at 5.5%, lowest since 1991.
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