However, unlike in the spring when it was the COVID Zero policy which caused a shortage of car parts and shuttered some plants, now it is the virus itself which is impacting production, with companies having to deal with more workers getting sick.

The spread of the virus across China has undermined the initial euphoria seen in the stock and commodity markets at the reopening. The Shanghai Composite Index has fallen back near the level it was at just before authorities started relaxing curbs on November 11 and has dropped for the past two weeks.

The price of iron ore was also headed for a modest weekly drop as a surge in COVID cases clouded the near-term demand outlook and undermined the effect of recent announcements of support for the real-estate sector. Chinese steel mills are currently reducing production, Guangfa Futures said in a note, with data from an industry association showing output falling and stockpiles rising in the middle of this month.

The drop in markets mirrors the poor confidence among small businesses, which was in contractionary territory for a third straight month in December, according to Standard Chartered Plc. Although there was a small improvement from November, the main indexes still showed smaller firms weren’t optimistic about the current situation or the future.

The manufacturing sector saw some improvement, with a rise in new orders, sales and production from November “likely reflecting the positive impact of the relaxation of COVID control,” the firm’s economists Hunter Chan and Ding Shuang wrote in the report.

However, “services SMEs continued to face headwinds from weak consumer sentiment amid rising Covid cases,” they wrote in a report last week.

There’s little good news for Chinese firms overseas, with the drop in global trade extending into December, according to early Korean data. That means that China’s exports may fall for a third straight month.

The almost 27 per cent drop in Korean exports to China in the first 20 days of this month shows the weakness of Chinese demand for semiconductors, which has been falling due to a slump in domestic and overseas demand for smartphones and other devices.

Bloomberg L.P.

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