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COVID-19: Lockdown in China’s Silicon Valley rattles investors

Its factories tool the world with mobile phones, while some of China’s best tech brains go there to churn out apps and games – but Shenzhen is now in lockdown as the coronavirus inflicts economic pain on the country and rattles markets.

Residents in the city of 17.5 million – sometimes dubbed China’s answer to Silicon Valley — have been ordered not to leave unless necessary and public transport has been halted as the country battles its worst virus outbreak in two years.

Most firms have been told to switch to working from home, which is impossible for many factories whose disruption is fuelling unease over supply chains and services. But how significant is Shenzhen to China’s economy?

– Hi-tech exports –

Home to Chinese tech giants including Huawei and Tencent, Shenzhen ranks third among Chinese cities in economic output meaning any prolonged closure will be felt sharply.

“It is a manufacturing hub and also a tech centre for China,” Hong Hao, of financial services firm Bocom International, told AFP.

Already, major Apple supplier Foxconn has suspended operations in Shenzhen while other tech manufacturers such as Netac Technology also halted some production.

Mechanical and electronic products make up 80 percent of exports from the southern powerhouse, which neighbours Hong Kong.

“This is a very significant lockdown and I think the full impact is yet to be revealed,” Hong added.

– Ripple effects –

Zhiwei Zhang, chief economist of Pinpoint Asset Management, said consumption would be “hurt quickly and severely” in a lockdown, followed by production and investment.

“It’s a ripple effect,” Hong of Bocom said, noting that other parts of China which depend on Shenzhen’s output could be hit.

“They would be working less efficiently than before.”

At least six companies on Apple’s supplier list are based in Shenzhen, where other producers such as electric-vehicle firm BYD are also based.

But some businesses deemed essential remain open.

Restrictions across the country hitting key hubs could pile pressure on China’s growth target of around 5.5 percent – already the lowest annual GDP target in decades — while Shenzhen’s proximity to Hong Kong is stoking fears of challenges in stopping transmission.

– Port operations –

The Yantian port, among the world’s busiest, is also in Shenzhen.

It is the largest single port in China, with economists noting it accounts for 10.5 percent of China’s foreign trade container throughput.

In previous outbreaks, the port has been forced to suspend the processing of containers, leading to backlogs, and the current outbreak adds to worries over already-high shipping prices.

The port appears to be operating for now, although virus cases could trigger disruptions.

Economists say the impact depends on how long restrictions persist.

Zhaopeng Xing of ANZ Research told AFP he believed authorities “can manage Omicron” as well as before within a month or so.

“The shock is short-lived,” he said, adding that it would be unlikely to hit the long-term outlook.

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