How zero-COVID impacted China’s domestic supply chains

Yahoo Finance's Jared Blikre explains how China's zero-COVID policy impacted domestic and global supply chains.

Video transcript

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JARED BLIKRE: Welcome back. This is "What Just Happened?" I'm Jared Blikre. Turning now to the impact on the supply chain, prior to the pandemic, Chinese GDP, it stood at 5 and 1/2% and was viewed as a floor. Then the unthinkable-- negative growth in 2020, which we see right here. It was reversed like a slingshot, excuse me.

After settling down a bit, the latest economic print came in at 3.9%. And economic prosperity was essentially sacrificed for political control. So probably not a coincidence that the dramatic policy change was enacted just as Chinese trade data was falling off a cliff, with both November imports and exports slowing by the greatest amount in years.

Now, drilling down into some familiar US company names reveals the extent to which the Chinese and US economies have become intertwined. Now, take Apple. Many companies derive the majority, in some cases, substantially all, of their revenue from this one behemoth. Take Foxconn over there on the left. That gets about 57% of its sales from Apple. Also note that the giant chip company, Taiwan Semiconductor, gets over 1/4 of its sales from Apple. Now, that is a huge slice of a huge pie.

And it's a very similar story for Nike. Feng Tay Enterprises derives 87% of its sales from the shoe and apparel giant, while Shenzhou International, 25%, Yue Yuen Industrial, 22%. So in the grand scheme of things, China lockdowns were affecting some US companies across the entire demand supply curve.

Now, one bright spot, at least, when it comes to shipping, is container rates, which had already surged five-fold in 2021, they had already come back down to Earth. The cost to ship from Shanghai to Los Angeles, New York, or Rotterdam now about 80% off of those highs, which we see here. And you can see this goes back about 10 years. Finally, we are in a range that we have seen that's manageable over the last 10 years.

Now, some say that the stock market is forward-looking. And Chinese stocks started rallying about four to six weeks ago. And these are the results over the trailing month. And you can see a lot of these stocks on the top line, some of them up more than 100%. Bilibili up 155%, Dada up 125%. So a lot of work to be done, but some of that already reflected in the share prices.