As worldwide cases doubled in a day, China shut down Shenzhen, its tech hub and second-largest port, and imposed severe restrictions on Shanghai, its largest port. However, the “biggest outbreak in two years” in China still only relates to 66 new cases reported on March 13 in Shenzhen, a city of 17 million people, and 65 cases in Shanghai, a population of almost 25 million people.
However, the unexpected lockdown could have far-reaching consequences, including determining the Fed’s interest rate target.
A lengthy Chinese closure might lead to increased inflation in the US, which should be on Fed policymakers’ thoughts as they meet this week to debate their interest rate objective.
The Hang Seng index in Hong Kong fell 5% to its lowest level since 2016. The Hang Seng technology index dropped 11%. Videogame producer NetEase, e-commerce behemoth JD.com, search and AI behemoth Baidu.com, and farm-tech behemoth Pinduoduo were among the Nasdaq composite’s worst performers.
Because no market is an island, especially when it comes to China, the closure of Shenzhen sent shockwaves through U.S. markets. The Nasdaq Composite Index fell 262.59 points, or 2%, to its lowest point since December 2020.
Apple’s stock dropped 2.7 percent, Amazon’s stock dropped 2.5 percent, and Google’s stock dropped 3%. However, nothing disastrous has occurred. The S& P 500 was only down seven-tenths of a point on the day, while the Dow Jones Industrial Average increased.
All non-essential workers in Shenzhen are required to stay at home, which implies that companies producing iPhones, semiconductor chips, computers, and other digital products will be shut down for a week.
The free trade zone in Shenzhen will close. “No cargo will be allowed to load in [Shenzhen’s port] Yantian beginning next week,” the supply chain firm SEKO Logistics, which has a Shanghai branch, warned in a note to its customers. “Vessels will most likely omit the port.”
A long-term shutdown would be inconvenient. It would exacerbate shortages of numerous Chinese-made goods, as well as shortages of those made overseas containing Chinese components.