Friday, July 1, 2022

Tough times in Shanghai

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Eight weeks ago, Kiwi-born Shanghai resident Hunter McGregor knew something bad was coming when he noticed his usually well-stocked local supermarket running out of some products.

“There were these gaps on the shelves, particularly for produce. It was an early sign supply chains were starting to falter and slow down, and it only got worse from there.”

McGregor is more attuned to food supply chains than most, having spent the past eight years running a small business importing NZ venison, specialising in supplying restaurants in Shanghai.

What he was witnessing was the emerging black hole of the latest Shanghai lockdown, one that sucked in all aspects of life for the city’s residents, one far more extreme than the first lockdown 18 months ago.

As in New Zealand, during the first round of lockdowns Chinese city residents continued to have access to essential services. 

One person per household could still leave their homes every couple of days to purchase food supplies. 

“But this time around everything, and I mean everything including food outlets of any type, were shut completely. The only time you could go out was for a PCR test.”

McGregor, a father of two young children under six and living with his wife and her parents, admits for the first time in 13 years living in the thriving city he started to worry where their next meal was coming from.

“The first time around we worried about the virus – this time, we worried about food.” 

Food supply became a stuttering delivery of collectively-ordered items bought from suppliers who would normally have sold into retail outlets.

“Instead, they started delivering into apartment complexes, but it has been patchy and pretty inefficient, although it has got better recently.”

Meantime, residents endured the first 21 days unable to venture outside as authorities continued to push on with their strict zero covid policy.

Perched on the 20th floor with no balcony and two small children, McGregor is stoically philosophical about the tough stretch he and his family are doing.

“It has been great having the kids here, they do help lighten the mood.”

Fifty-two days later he and his family are enjoying the opportunity to socialise outside in their apartment compound and are receiving more regular government-subsidised food packages. 

McGregor marked the 50th day of lockdown with some “average” Chinese beef and good Japanese whiskey.

But he maintains life in Shanghai and the other big cities locked down is far from likely to return to normal any time soon. 

People wait to pick up food parcels in Shanghai.

Government supplied food drops readied for delivery to Shanghai residents this week.

Unlike NZ, businesses receive no support and people are increasingly concerned that once any semblance of normal life returns, their jobs will not be there.

“A typical example is the owner of a local produce market. He’s paying the equivalent of NZ$10,000 a month in shop rent, $4000 in wages, plus his own rent and no government support.”  

The crunching reality of this round of lockdowns has been reflected in the surreal emptiness of Shanghai, recently captured on a WeChat drone flyover. 

Equally surreal is the sight of hundreds of long-haul truck drivers, stranded in the city by the draconian rules that have them living in their trucks, cooking on the sidewalk and using fire hydrants for water supply.

Internal shipping logistics have become a nightmare, with trucks stopping at city borders rather than entering and being unable to leave, trans-shipping if possible and adding significantly to cost and time.

“And this extends to many cities across China – the ability to get into a port is relatively good, but from there, it’s very tough.”

A euphemistically titled “closed loop” work option is open to businesses that lets them bring staff back to work in factories and plants.

“But the catch is they have to stay there, can’t go back home.” 

McGregor’s observations on how this lockdown will impact beyond Shanghai should be chilling for many NZ exporters.

“People are less inclined to be buying higher-cost luxury items, including foods. They are trading down from beef or lamb to chicken or pork,and all food service trade has been shut, many probably won’t re-open.”

Kiwi companies with staff on the ground will appreciate the enormity of the lockdowns, while those more remote may find it a sharp shock.

Latest consumption data reveals the lockdowns are already biting hard, with retail sales down 11% year-on-year in April, and manufacturing down 5%.

With the government committed to zero covid and Beijing bracing for a hard lockdown, there will be little political will to cede to the virus in the capital. 

McGregor expects such lockdowns to continue for weeks yet, with rolling disruptions rippling well beyond the cities affected.

Ever optimistic, McGregor still sees opportunity in China but cautions it will be a far tougher road to establish new outlets in the future.

“It will be a challenge for NZ producers to maintain prices,and margins, given the cost increases internally.”

He has always run their business with low overheads and he has worn out many pairs of shoes tramping between restaurants touting quality NZ venison cuts.

“In the short-term if you are producing products suitable for home prep and sale via e-commerce the opportunities are there, but you do have to work a bit harder.”

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