China Economy

China's Covid spike worsens: Dongguan factory center locks down, new cases top 3,500 nationwide

Key Points
  • Recent outbreaks in 28 provinces have infected more than 15,000 people and stem primarily from the highly transmissible omicron variant, China's National Health Commission said Tuesday, according to state media.
  • On Tuesday, Dongguan city in the southern province of Guangdong ordered employees of businesses to work from home and locked down residential areas, permitting only necessary activities such as buying groceries and taking virus tests.
  • Yum China, which operates Pizza Hut and KFC in the country, announced Monday that same-store sales for the first two weeks of March have fallen by about 20% year-on-year.
Aerial view of people queuing up for COVID-19 nucleic acid testing on February 26, 2022, in Dongguan, Guangdong province.
Vcg | Visual China Group | Getty Images

BEIJING — China's worst Covid-19 outbreak since the initial wave of the pandemic worsened Tuesday with a major factory city ordering production halts.

Recent outbreaks in 28 provinces have infected more than 15,000 people and stem primarily from the highly transmissible omicron variant, China's National Health Commission said Tuesday, according to state media. China has 31 province-level regions.

Although the northern province of Jilin accounts for most of the cases, the latest outbreak has hit major cities such as the financial center of Shanghai and technology manufacturing hub Shenzhen.

On Tuesday, Dongguan city in the southern province of Guangdong ordered employees of businesses to work from home and locked down residential areas, permitting only necessary activities such as buying groceries and taking virus tests.

The city took a targeted approach to production halts. In industrial parks that haven't reported cases, businesses can maintain basic production under stringent virus control measures. Factory workers often live in dormitories near their workplace.

In areas reporting local cases, businesses must stop production, the announcement said. The measures took effect at noon on March 15 and will last for about a week, until the end of day March 21.

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Guangdong province produced about 24% of China's exports in 2020, according to the latest available official data accessed through Wind Information. The database showed that among cities its size, Dongguan was the fifth-largest contributor to China's GDP last year, with 1.09 trillion yuan ($170.31 billion) in output.

Dongguan reported nine confirmed Covid cases and 46 asymptomatic cases for Monday. The nearby tech hub of Shenzhen, also in Guangdong province, reported 60 new cases, including asymptomatic ones.

The total local case count for Monday in mainland China included 3,507 new confirmed Covid cases and 1,647 asymptomatic ones, mostly in the northern province of Jilin. That's more than double from a day earlier.

China is set to see a sharp slowdown in March, given it is dealing with the worst Covid outbreak since 2020.
Larry Hu
chief China economist, Macquarie

On Tuesday, China's bureau of statistics spokesperson downplayed the impact of the Covid-related restrictions on economic activity, after reporting better-than-expected data for January and February.

Economists have said China's zero-Covid policy — using travel restrictions and neighborhood lockdowns to control outbreaks — affects consumer spending more than manufacturing.

But the latest wave of cases surpasses the pockets of outbreaks China has dealt with since the height of the initial pandemic in early 2020.

KFC, Pizza Hut sales drop

Fast food chain Yum China reported that sales have been hurt by the outbreaks.

"Our operations are significantly impacted by the latest outbreaks and the tighter public health measures which resulted in a further reduction of social activities, travelling and consumption," Yum China, which operates Pizza Hut and KFC in the country, announced Monday.

Same-store sales for the first two weeks of March fell by about 20% year-on-year and are "still trending down," the company said. The number of its stores that are temporarily closed or are offering only takeaway and delivery has more than doubled, Yum China said. There were over 500 such stores in January but more than 1,100 as of Sunday.

Yum China's same-store sales plunged by about 40% to 50% from a year ago during the Lunar New Year holiday in 2020 when Covid first hit China.

“China is set to see a sharp slowdown in March, given it is dealing with the worst Covid outbreak since 2020," Larry Hu, chief China economist at Macquarie, said in a note Tuesday. ”At this moment, policymakers are clearly putting COVID-zero ahead of growth.”