China seeks to contain economic disruption over Shanghai lockdown

Authorities in China’s financial hub of Shanghai are promising tax refunds for merchants and keeping the world’s busiest port running to limit disruptions to industry and commerce as millions of people in the shuttered metropolis line up to get tickets. COVID-19 tests.

The shutdown this week of most activities in China’s most populous city to contain virus outbreaks rattled global financial markets already on edge over Russia’s war on Ukraine, higher US interest rates and China’s economic slowdown.

On Wednesday, the government reported 8,825 new infections across the country, including 7,196 in people without symptoms. That included 5,987 cases in Shanghai, of which only 329 had symptoms.

China’s number of cases in its latest wave of infections is low compared to other major countries. But the ruling Communist Party is pursuing a “zero tolerance” strategy aimed at isolating all infected people.

Some 9.1 million of Shanghai’s 26 million people had been tested for the virus as of Wednesday, according to health officials. They said “preventive disinfection” of apartment complexes, office buildings and shopping malls would be carried out.

Shanghai has recorded more than 20,000 cases as of Monday in its latest outbreak, according to state media.

The party is trying to fine-tune its strategy to curb job losses and other costs to the world’s second-largest economy.

The Shanghai government announced tax rebates, rent cuts and low-cost loans for small businesses. A government statement on Tuesday promised to “stabilize jobs” and “optimize the business environment.”

Shanghai port remained open and managers made extra efforts to ensure ships “can call as normal,” state television reported. and other goods.

Operations at Shanghai airports and train stations were normal, according to online news outlet The Paper. Bus service in and out of the city was previously suspended. Visitors must show a negative virus test.

Overseas, the biggest potential hit to China’s Asian neighbors and the rest of the world is likely to come from events that dampen demand in the world’s most populous consumer market, the economists said.

China is the largest export market for all of its neighbors, including Japan and South Korea.

Economic growth was already forecast to slow from 8.1% last year due to a government drive to reduce corporate debt and other challenges unrelated to the pandemic. The ruling party’s official target is 5.5%, but forecasters say even that looks elusive and will require stimulus spending.

“China is the single largest consumer of just about everything. It imports outside of China,” said Rob Carnell, chief Asia economist at ING. “If COVID-19 knocks down China’s consumption, it will be something that will filter the supply chain and affect countries in the region.”

Officials are trying to defend China’s role in global manufacturing supply lines making sure products get to customers, said Louis Kuijs, chief Asia-Pacific economist at S&P Global Ratings. He noted that after previous closures, factories have caught up on orders by working overtime.

“The impact on supply chains is not as great as many outside observers fear,” Kuijs said. “These restrictions tend to have a bigger impact on spending and demand in China.”

The impact on Shanghai should be “relatively muted” if the city contains its outbreak as the southern business hub of Shenzhen did before, Carnell said.

Shenzhen, a tech and financial hub of 17.5 million people, imposed a similar citywide lockdown in mid-March and reopened a week later.

Employees in financial industries can work from home, while automakers and other big manufacturers can have workers live in factories in a “closed-loop system” that isolates them from outside contact.

General Motors Co. and Volkswagen AG said their factories in Shanghai were operating normally. GM said in an email that it was conducting “global contingency plans” with suppliers to reduce uncertainties related to COVID-19.

Elsewhere, a total of 2,957 new cases were reported in northeastern Jilin province, including 1,032 without symptoms. Access to the cities of Changchun and Jilin in that province has been suspended.

The BMW Group said its factories in Changchun suspended production on March 24 following an outbreak.

In Shanghai, thousands of stockbrokers and other financial employees slept in their offices to avoid contact with strangers, the Daily Economic News reported. He said the Shanghai Stock Exchange was operating normally with a reduced staff in a “closed office”.

China’s benchmark Shanghai Composite stock index rose 1.3% by midday on Wednesday. Most other Asian markets also advanced.

Nearby, the riverfront Bund, Shanghai’s most famous neighborhood, was quiet and empty of its usual crowds of pedestrians.

Most restaurants were only allowed to serve diners who ordered by mobile phone and waited outside to pick up their meals. Mall visitors were required to wear masks and sign in using a smartphone app.

A major threat to industry and commerce looms if disease restrictions disrupt activity at the port of Shanghai. It handles the equivalent of 140,000 cargo containers a day.

“If the port is closed, there would be even more dislocation, but it’s not like everything is fine right now,” Carnell said. “It’s just another thing we wouldn’t need.”

Last year, a month-long slowdown at another major port, Yantian in Shenzhen, caused a buildup of thousands of shipping containers and sent shockwaves through global supply chains.

The shudders in financial markets may be an overreacting “knee reaction” that doesn’t reflect the “true reality of the situation”, but investors were already worried about China and the global economy, Rabobank’s Michael Every said.

“We have a whole mountain of problems to worry about, and this is just one foot among many,” Every said. “If that’s it, a COVID-19 lockdown, it’s not hard to look in recent history books and see how it plays out. But this interacts with a lot of other issues.”

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