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China corrosion coming?
A stop-start port industry and potentially faltering economy are raising questions about China’s reliability as the world’s leading trading partner, as AJ Keyes discovers
Is China still the unstoppable economic force and manufacturing engine room for the world? Well, it is becoming apparent that a combination of economic challenges and Beijing’s hard-line COVID-19 approach to completely shut-down port cities are raising questions about the country’s future trading position.
At the start of January 2022, the World Bank issued an economic prospects report that stated how a severe and prolonged downturn in the real estate sector in China would cause a significant economy-wide negative impact in the country due to the combined onshore and offshore liabilities of property developers, amounting to almost 30 per cent of total country GDP.
The report concluds that years of regulatory curbs on borrowing is leading to a string of offshore debt defaults, credit-rating downgrades and sell-offs in developers’ shares and bonds. In short, Chinese developers are facing an unprecedented liquidity squeeze, as highlighted by China Evergrande Group’s main unit Hengda Real Estate Group seeking a six-month delay for redemption and coupon payments with its bondholders.
STOP-START PORTS AND ZERO TOLERANCE
Coupled with this increasingly uncertain economic backdrop is the ongoing, stop-start nature of port activities and manufacturing due to COVID-19 outbreaks, with central Government maintaining its strict zero tolerance approach.
This is causing a negative impact on the supply-chain for goods out of China, with shipping lines, beneficial cargo owners and ports receiving the Chinese export loads being negatively impacted. At the same time, uncertainty in the construction sector and domestic economic growth are playing havoc with bulk imports.
The recurring emergence of COVID-19 strains continued throughout 2021, culminating in a particularly difficult end to the year. In December 2021 over 300,000 people tested for coronavirus in a district in the port city of Ningbo following an outbreak of the illness, while the district of Zhenhai had a twoweek lockdown after five people tested positive for COVID-19, marking the third lockdown in less than six months in Ningbo.
This trend has continued into 2022. In early January there was a breakout of the Omicron strain of COVID-19 in the port city of Tianjin, resulting in a partial lockdown, with mass testing of the 14 million inhabitants.
While the port remained operational, there have been negative knock-on effects across the supply chain. For example, vehicle manufacturers, Toyota and Volkswagen, have suspended production at Tianjin factories and at port terminals the pick-up of import containers has been suspended, gate hours reduced and a restriction put in place on truck deliveries.
The issue is spreading further afield, with other Chinese port cities including Dalian and Shanghai reporting positive COVID-19 cases and mass testing taking place in Shenzhen, after a “cluster” of cases was detected.
Local reports in China indicate that Ningbo-Zhoushan, China’s second busiest container port is still open for business, but the efforts to contain the spread of COVID-19 is slowing trucking logistics activities. Likewise, road transport in Jinhua Yongkang, dubbed a “medium-high” risk area of Beilun and the area outside Zhejiang province, where Ningbo is located, was suspended at the time of writing (mid-January 2022)
CARGO MOVEMENT BRAKE
Global liner operator, Maersk Line, provided a synopsis of the challenges in Ningbo in its customer briefing on January 11, 2022: “Unfortunately, 2022,” Maersk says, “has not started off as we had hoped. The pandemic is still going strong and
8 Ships are skipping
Ningbo-Zhoushan for Shanghai due to COVID-19 outbreaks
unfortunately, we are seeing new outbreaks impacting our ability to move your cargo. General sickness remains high as key ports in key regions are seeing new COVID-19 peaks. In China, the city of Beilun is also experiencing a COVID-19 outbreak….trucking services in Jinhua Yongkang, the midhigh-risk area of Beilun and the area outside the Zhejiang province are suspended under the strict regulation by the epidemic prevention policy.”
As a result, ships are already diverting away from Ningbo, with nearby Shanghai the preferred option. Yet this causes delays to liner schedules, by “about a week,” according to local forwarders. “The danger is that delays at China’s ports will cause further backlogs in North American and North European ports and without noticeable, quick, improvements, ships may even begin to omit Chinese ports,” suggests Dean Davison, Technical Director Maritime Advisory, WSP.
Beijing’s strict zero-COVID-19 policy helps to curb local outbreaks with mass testing, snap lockdowns, vigilant surveillance and extensive quarantines. Yet the country still struggles to deal with the recurring effects of the pandemic, with local outbreaks continuing to flare up with increasingly short intermissions.
Short-term, shippers and logistics partners are struggling to get cargo on vessels before the Chinese New Year (CNY) holidays that run from January 31 through to February 15, 2022. After CNY, ongoing issues in China will further damage the supply chain and make the option of shipping from other South East Asian economies appealing.
So, how is the continued disruption impacting China’s port industry? Well, for the most part the ports are seeing positive results, albeit that available data released by the Ministry of Transport is only available for January to end of November 2021. Overall, container ports in China handled a total of 259.7 million TEU for this period, reflecting a year-on-year increase of 7.2 per cent over the comparable 11 months of 2020.
The largest volume 12 ports are identified in Table 1, again from Ministry of Transport data. The Port of Shanghai remains the top-performing port in China, handling 38.99 million TEU during the assessment period, reflecting an increase of 8.7 per cent compared to the first 11 months of 2020. Other notable increases, and volumes handled, were recorded at Shenzhen (23.79 million TEU, an increase of 10.7 per cent) and Qingdao (19.87 million TEU) a 10.3 per cent uplift.
Collectively these 12 ports handled over 144.9 million TEU during the first 11 months of 2021, reflecting an increase of 4.5 per cent over the January to November period of 2020.
However, this position is certainly being skewed by the continued decline at Dalian. Container activity was down by a notable 34 per cent during the assessment period. For 2020 the port saw a bigger drop of 41.7 per cent to finish 2020 at 5.11 million TEU – down on the 8.81 million TEU handled in 2019. Localised reports indicate that a combination of weakening GDP, a drop in reefer shipments and traffic shifting to nearby Yingkou were all factors in 2020.
Yet the trend has clearly continued into 2021. Dalian port is located in the North East of the country, along with Tianjin and Qingdao – both faster-growing facilities and it can be assumed that container traffic routing is preferred for these ports, as per the trend over the past few years.
The total picture underlines the world’s continuing dependence on Chinese manufacturing but reduced reliability and major difficulties at the macro- level are seeing large foreign importers increasingly looking for alternatives.
REDUCED PROSPECTS?
Container port growth in China was largely positive for 2021, but the continued return of COVID-19 cases, Beijing’s insistence of a zero-tolerance policy and rumblings of an economic crisis starting, leave China in a potentially perilous position for 2022.
The resurgence of COVID-19, the latest data released suggests, can be seen to be gathering momentum, so it cannot yet be gauged just what the full impact will be. However, with a negative impact on the freight logistics network anticipated through Q1 2022, at least, shippers and their transport partners may be prompted to consider sourcing more goods from other South East Asian locations instead.
The bubble has not yet burst for China, but the country’s dreams of remaining as the manufacturing engine to the world may slowly be beginning to slowly to fade.
8 Table 1: Container
