The prolonged lockdown in China, the world’s largest exporter, has severely disrupted manufacturing and supply chains. As a result, China is experiencing its weakest economic growth in years.

The International Monetary Fund and other private forecasters are projecting growth of just 3% for the first nine months of 2022. This is the second weakest number since the 1980s. It was low only in 2020, when growth slowed to 2.4% after key sectors of the economy were shut down to stem the spread of the coronavirus.

Combined with rising inflation, China’s position as the world’s shipping giant also slipped slightly in the second half of 2022. In early December, CNBC’s supply chain heat map revealed that US manufacturing orders in China fell by 40%. Supply chain research firm Project 44 also confirmed this finding, claiming that the TEU volume on ships from China to the United States had dropped significantly by the end of her summer of 2022. The company estimates that total shipping container volumes fell 21% from August to November.

Companies move away from China manufacturing

Meanwhile, the transfer of manufacturing from China to Southeast Asian countries accelerated in 2022.

A new trading leader is emerging in Southeast Asia, according to the September study by DHL and the NYU Stern School of Business. Vietnam, India and the Philippines are seeing increasingly large-scale industrialization investments, and many global companies are diversifying their China-centric manufacturing and procurement strategies. The study found that three countries stand out in terms of both the speed and magnitude of projected trade growth through 2026.

Recent U.S. restrictions on the Chinese semiconductor industry are another shock that is pushing companies to exit the Chinese market. Once a competitive place for semiconductor makers, new risks are crippling China’s manufacturing dominance. These include rising labor costs, supply chain disruptions due to lockdowns, and heightened geopolitical risks.

Things are expected to improve later in the year

Despite the changes in Southeast Asia, that doesn’t necessarily mean that China is losing its status as the world’s manufacturing powerhouse.

At the Central Economic Working Conference that ended last Friday, President Xi Jinping and other top leaders vowed to refocus on boosting the economy next year. The leaders also hinted at pro-business policies and promised more support for the property market. This will revitalize the dry bulk shipping market, which is heavily influenced by China.

Moreover, a recent report by Morgan Stanley predicts that China will recover its economy from mid-2023, achieving 5% growth for the full year.

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