Chengdu and Shenzhen Lockdowns Dim Luxury Prospects

·2 min read

SHANGHAI — With an uptick in COVID-19 cases, China has recently shut down megacities Shenzhen and Chengdu.

Chengdu extended lockdown measures to at least Wednesday. The news spurred Chengdu residents to panic-buy groceries, fearing tightening lockdown measures. Chengdu reported 73 new cases on Tuesday.

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Shenzhen, the fourth largest city in China with a population of more than 17 million, has seen six of its nine districts announce travel curbs and public activity restrictions from Sept. 2.

On Monday, Shenzhen announced the adoption of a tiered lockdown system. Neighborhoods with no COVID-19 cases from Sept. 2 to 4 will be marked as “low” risk areas and ease lockdown measures. “High” or “medium” risk neighborhoods will remain under lockdown.

Authorities have urged residents to stay home during this year’s Mid-Autumn Festival holiday, which starts Saturday. The city reported 40 new COVID-19 cases on Tuesday.

China is adamant about reigning in COVID-19 outbreaks ahead of the weeklong National Congress meeting in mid-October, where president Xi Jinping is likely to secure an unprecedented third term.

According to local news media Caixin’s estimate, 33 cities, including seven provincial capitals, have been put under various lockdown measures, affecting more than 60 million residents.

The latest sweeping restrictions add pressure to the world’s second-largest economy as the rest of the world learns to live with the virus. According to Sinolink Securities, lockdown areas account for 4.8 percent of total GDP.

Beijing initially set a growth target of 5.5 percent this year. Analysts expect actual growth to be far lower. Goldman Sachs and Nomura recently slashed China’s full-year growth forecast to 3 percent and 2.7 percent respectively.

According to Flavio Cereda, equity analyst at Jefferies, an 11 percent growth in luxury spending for the second half of 2022 “is under pressure now given the lockdowns.” Jefferies projects a 2 to 3 percent decline in luxury sales for the financial year of 2022.

A struggling property sector, languishing consumer sentiment, high youth unemployment rate, power shortages and the deadly Sichuan earthquake are also weighing on growth.

Retail sales for July grew 2.7 percent versus a year ago, down from 3.1 percent in June, according to the National Bureau of Statistics. Retail sales for the first seven months of 2022 dropped 0.2 percent year-over-year.

“The spread of pandemic and travel-related commodity sales growth slow down contributed to the decelerated growth for the consumer market,” said Jiaqi Fu, a statistician at the bureau. In recent months, travel destinations such as Hainan, Tibet, Xinjiang, Qinghai and Yunnan all imposed lockdown measures.

According to China’s National Health Commission, 380 cases were reported in 31 provinces and municipalities on Tuesday.

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