China lockdowns may dent PHL manufacturing

A worker in protective overall stands in the middle of empty streets in a lockdown area in the Jingan district of western Shanghai, Monday, April 4, 2022.

CHINA’S struggle to contain the spread of Covid-19 may dent the performance of the Philippines manufacturing and export performance in the coming months, according to local economists.

The Chinese government recently implemented what is called a “dynamic clearance” in important trade hubs or large cities like Shanghai to prevent the spread of Covid-19.

Ateneo Eagle Watch Senior Fellow Leonardo A. Lanzona Jr. said these lockdowns could intensify supply side constraints now being experienced by global and regional trade.

“The situation of ‘dynamic clearance,’ the term used in China for lockdowns, would further strengthen the supply side constraints which up to now affects global and regional trade. This of course leads to shortages and eventually inflation,” Lanzona told the BusinessMirror.

“The situation can offset much of the gains we have made in terms of production and trade since the start of the year when we began to reduce our virus restrictions,” he added.

Lanzona said the country’s manufacturing performance may slow down unless the Philippines develops trade with other countries in the Asia and the Pacific region.

Look beyond China

“The goal then is to look for other markets than China. This can prove to be a challenge so it is crucial also that we shift our attention to our agricultural sector to ensure food production and reduce shortages that can lead to price increases,” Lanzona said.

Former Dean of the University of the Philippines School of Economics Ramon L. Clarete said the situation in China would “badly” affect regional and global trade as it accounts for 30 percent of the world’s manufacturing sector.

Clarete said in terms of car manufacturing, China is an important player as it supplies batteries used by Tesla vehicles. Other commodities are bound to be affected by these lockdowns.

He said the Philippines, as a value adder in the manufacture of electronic products, would be affected through its imports. These imports will also affect the country’s top export product, semiconductors.

Clarete said factories, including Philippine Economic Zone Authority (Peza) locators, would experience a slowdown as the “holdup in global supply” will drag industrial performance.

“This is like the curse of globalization. The global supply chains have to innovate into more participants in the chain to manage the risk such as lockdown in a supplying country,” Clarete told this newspaper.

“For now, [the Philippines] could focus on non-tradables like food and agriculture, processed food for the domestic market, mining to stockpile, [as well as] services such as tourism and BPO [Business Process Outsourcing],” he added.

However, Action for Economic Reforms (AER) Coordinator Filomeno Sta. Ana III said that while China’s impact on the global and regional economy is significant, the situation in other parts of the world is far worse.

Sta. Ana said media outlets’ reports on the Covid-19 situation in China “are exaggerated” and that there was no reason for China not to be able to contain the spread of Covid-19.

He added that with more vaccines and even medication, China is in a better situation to fight the pandemic. He said the track record of China in fighting the virus speaks for itself as the outbreak in Wuhan was “decisively flattened.”

“That said, the disruptions in China will affect supply chains and trade. But the problem in relation to the current Omicron surge is temporary,” Sta. Ana told BusinessMirror.

Weakened influence

Meanwhile, Freedom from Debt Coalition (FDC) President Rene Ofreneo thinks the role of China as the “growth locomotive of Asia” has already been significantly diminished.

The numerous disruptions have eroded the leadership of China. Ofreneo added that China’s internet growth was affected by the resurgence of Covid and the real estate crisis as seen with Evergrande.

Further, Ofreneo said China’s Belt and Road Initiative has become less visible and its lending programs to Sri Lanka and Pakistan have highlighted the “danger” faced by borrowing countries when they secure Chinese loans.

The partnership of China with Russia, Ofreneo said, has also affected China’s position in regional and global affairs. He said the partnership has been “denounced by the West” and affected the global economic order.

“All the foregoing have serious implications on the Philippines. Lately, the government is no longer as gung-ho as before in discussing advantages of trade and investment partnership with China,” Ofreneo told BusinessMirror in an e-mail.

These developments, Ofreneo said, prompts the Philippines to strengthen its domestic capacity by boosting its industrial and agricultural growth.

This also makes it imperative for the next administration to invest in local talents or improve the skills of Filipinos. There is a need, Ofreneo said, to “restrategize growth” of the Philippine economy.

Bloomberg recently reported that the lockdowns to contain the country’s worst Covid outbreak since early 2020 have battered the economy, stalling production in major technology and financial hubs like Shenzhen and Suzhou, and halting spending by millions of people shut in their homes. (Story: https://businessmirror.com.ph/2022/04/16/heres-how-chinas-lockdowns-are-rippling-through-the-economy/)

Image credits: AP/Chen Si


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