Shanghai weathers Covid outbreak with economic aid

By Víctor Escribano

Shanghai, China, Mar 29 (EFE).- Shanghai is grappling with its worst Covid outbreak since the start of the pandemic as the financial hub tries to keep the economic engine that fuels 3.8% of China’s GDP afloat.

On Sunday a staggered quarantine was announced for the city which will see areas on the eastern and southern banks of the Huangpu River shuttered until 1 April, while western areas will follow suit from 1 to 5 April.

According to Alicia García-Herrero, chief economist for Asia-Pacific at Natixis, the combined GDP of confined cities is 9%, including Shanghai and the northern cities of Jilin and Tangshan, which churn out 15% of China’s steel.

“The weight of manufacturing is much greater and it must be protected, not only because the impact on the economy would be brutal, but also because it would reduce Chinese exports and foreign companies could speed up their departure from China and take their factories elsewhere,” says the analyst, adding that it was the manufacturing sector that fueled growth in fixed-asset investment in 2021.

Julian Evans-Pritchard and Sheana Yue, analysts at the British consultancy Capital Economics, say lockdowns have led to a labor shortage in some areas with around 400,000 people confined across the country.

García-Herrero points out that current outbreaks will not be over by the beginning of the second quarter in April and they will likely weigh down projected growth for the first quarter of the year.

The Shanghai Stock Exchange, the largest in China by capitalization with over $7.25 trillion, has already suffered the effects of the coronavirus outbreak and the war in Ukraine. Its benchmark index slid by 8.2% in April.

In addition to its status as a financial hub, Shanghai’s port is the busiest in the world in terms of traffic, and fears bottlenecks could disrupt supply chains.

Amid myriad challenges, authorities announced a raft of measures late Monday aimed at cushioning the economy with subsidies for volunteers and medical personnel and tax deductions for businesses, especially SMEs.

The municipal government also said that businesses inflating prices would face fines of up to 3 million yuan ($471,000). The most serious offenders could get their licenses revoked.

The measure is attempting to curb a sudden spike in prices during lockdowns, particularly when it comes to basic goods and those that help with contagion prevention like masks and disinfectants. EFE

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