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Shanghai’s covid lockdown is over. Its economic problems aren’t.
When the end came for Shanghai’s covid lockdown — at the stroke of midnight on June 1 — it was met with cheerful reunions and Champagne toasts across the city. And for good reason. For two months, the 25 million residents of this famously vibrant, high-wattage metropolis had been confined to their homes as the government fought to contain China’s largest outbreak. The nation’s hard-line zero-covid policy had brought Shanghai to a standstill. Only essential workers were allowed to venture out. Businesses were shuttered, and supply chains broke down.To get more Shanghai economy news, you can visit shine news official website.
The reopening came as daily cases of the virus hovered near zero, and it means that people can once again roam freely, and businesses can reopen — though residents will still be required to have a covid test every 72 hours.
When it comes to the human cost — in terms of public health and the trauma of trying to obtain food and medicine — the worst has passed. But the longer-term impact of Shanghai’s lockdown will be felt in other ways and not only in the city. Sources told Grid that many of the economic problems generated by the lockdown are profound and cannot be erased overnight. Chinese officials remain committed to the same zero-covid policy that shut Shanghai down; that casts uncertainty over the city’s return to normalcy and the entire country’s economic trajectory as well.
“The truth is that the reopening is a positive sign for markets, but you can’t take it as a given that things will just move in a linear direction positively,” Shehzad Qazi, managing director at China Beige Book, a data analytics firm, told Grid. “Covid outbreaks can very quickly lead to reversals.”
Meanwhile, Shanghai’s economic uncertainty is symptomatic of troubles zero-covid has caused across the country and amount to a major challenge for the Chinese government. As China’s President Xi Jinping seeks to secure a third term in November, the growing toll of the pandemic will have political implications as well.
“The long-term significance is even more serious,” Daniel Rosen, CEO of the Rhodium Group, which tracks the Chinese economy, told Grid. “The lockdowns have revealed the eroding capacity of the Chinese system to make good choices between economic welfare and political pride and the severe slowing that results when politics predominates in modern China.”Initially, many of the city’s factories ground to a halt. To help restart production, the government allowed some companies to enter a “closed loop” — a policy that was used to manage the February Beijing Winter Olympics. After clearing a covid test, workers at factories (Tesla’s was a much-covered example) lived on site. Scientists at some pharmaceutical companies slept in their labs to continue product testing. But even with these measures, industrial production fell across Shanghai and the Yangtze Delta region as workers got sick, others stayed home and supply chains were fractured.
Shanghai’s service sector — which in recent years has accounted for an estimated 70 percent of the city’s GDP — took a big hit as well. Many nonessential businesses including beauty parlors and the city’s popular coffee shops were forced to close. Eliza Jiao, the CEO of Personalively, a “new retail” company, told Grid the lockdown disrupted her business in ways great and small. Her company’s cash flow was interrupted because it wasn’t possible to process invoices from home, they couldn’t develop new business leads, and an in-person pop-up sales event for a client was canceled. Meanwhile, some of their clients’ e-commerce supply chains were impacted, so Jiao had to reduce order volume and refund some purchases.
Shanghai’s low-income population felt the pain of the lockdown most acutely. Xu Qiangwei, a young migrant worker employed in a Shanghai car factory, told the World of Chinese that an outbreak there had slowed production, cutting into his paycheck. “Because of the pandemic, I only worked half of last month and haven’t been paid yet. I’ve already spent all my money since this outbreak started.”
After one of his roommates tested positive, Xu was locked down in his room and went hungry for two days because the workers’ dorm received no food deliveries from the government, and skyrocketing prices made it impossible for him to buy food. “After this outbreak is over, I want to go home,” he said. “At home, at least I won’t go hungry.”As the city reopens, the Shanghai government has rolled out a slew of measures — from business tax breaks to consumer subsidies — to help boost the economy.
But the latest news from the city suggests the road to recovery will be steep. Tesla’s Shanghai factory is operating at only 70 percent of capacity — one of many cases of factories struggling to get back to work due to labor and supply chain issues. Manufacturing executives in Shanghai told the South China Morning Post in May that layoffs would be necessary even after the lockdown, because of losses they had incurred.
Among those recovery measures, the Shanghai government announced that all the city’s businesses could reopen without applying for a permit. But some firms didn’t survive the two months of paralysis. A hairdresser broke down in tears telling the BBC that he had been forced to close his salon.