As millions of people in Shanghai line up for coronavirus tests, authorities are promising tax refunds for shopkeepers in the closed-down metropolis and to keep the world’s busiest port functioning to limit disruption to industry and trade.
This week’s shutdown of most activity in China’s most populous city to contain virus outbreaks jolted global financial markets that already were on edge about Russia’s war on Ukraine, higher U.S. interest rates and a Chinese economic slowdown.
China’s case numbers in its latest infection surge are low compared with other major countries. But the ruling Communist Party is enforcing a “zero tolerance” strategy aimed at isolating every infected person.
Some 9.1 million of Shanghai’s 26 million people had undergone virus testing by Wednesday, according to health officials. They said “preventive disinfection” of apartment compounds, office buildings and shopping malls would be carried out.
Shanghai recorded more than 20,000 cases by Monday in its latest outbreak, according to state media.
The party is trying to fine-tune its strategy to rein in job losses and other costs to the world’s second-largest economy.
The Shanghai government announced tax refunds, cuts in rent and low-cost loans for small businesses. A government statement Tuesday promised to “stabilize jobs” and “optimize the business environment.”
The Shanghai port stayed open and managers made extra efforts to ensure vessels “can call normally,” state TV reported. The port serves the Yangtze River Delta, one of the world’s busiest manufacturing regions, with thousands of makers of smartphone and auto components, appliances and other goods.
Operations at Shanghai airports and train stations were normal, according to the online news outlet The Paper. Bus service into and out of the city was suspended earlier. Visitors are required to show a negative virus test.
Abroad, the biggest potential impact on China’s Asian neighbors and the rest of the world is likely to come from developments that chill demand in the world’s most populous consumer market, economists said.
China is the biggest export market for all of its neighbors, including Japan and South Korea.
Economic growth already was forecast to decline from last year’s 8.1% due to a government campaign to cut corporate debt and other challenges unrelated to the pandemic. The ruling party’s official target is 5.5%, but forecasters say even that looks hard to reach and will require stimulus spending.
“China is the biggest single consumer of practically everything. It matters outside China,” said Rob Carnell, chief Asia economist for ING. “If China’s consumption is getting knocked down by COVID, it is going to be something that filters down the supply chain and affects countries in the region.”
Officials are trying to defend China’s role in global manufacturing supply lines by making sure goods get to customers, said Louis Kuijs, chief Asia-Pacific economist for S&P Global Ratings. He noted that after previous shutdowns, factories caught up with orders by working overtime.
“The impact on supply chains is not as big as many outside observers fear,” Kuijs said. “These restrictions tend to have a larger impact on spending and the demand side in China.”
The impact on Shanghai should be “relatively muted” if the city contains its outbreak as the southern business center of Shenzhen did earlier, said Carnell.
Shenzhen, a tech and finance center of 17.5 million people, imposed a similar citywide shutdown in mid-March and reopened a week later.
Employees of financial industries can work from home, while automakers and other big manufacturers can have workers live at factories in a “closed loop system” that isolates them from contact with the outside.
General Motors Co. and Volkswagen AG said their factories in Shanghai were operating normally. GM said in an email it was carrying out “contingency plans on a global basis” with suppliers to reduce COVID-related uncertainties.
Elsewhere, a total of 2,957 new cases were reported in Jilin province in the northeast, including 1,032 with no symptoms. Access to the cities of Changchun and Jilin in that province has been suspended.
BMW Group said its factories in Changchun suspended production March 24 following an outbreak.
In Shanghai, thousands of stock traders and other finance employees were sleeping in their offices to avoid contact with outsiders, the newspaper Daily Economic News reported. It said the Shanghai Stock Exchange was functioning normally with a reduced staff in a “closed office.”
The Chinese stock market’s benchmark Shanghai Composite index was up 1.3% at midday 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 via mobile phone and waited outside to collect meals. Visitors to shopping malls were required to wear masks and register using a smartphone app.
A bigger threat to industry and trade looms if anti-disease restrictions disrupt activity at the Shanghai port. 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 now,” said Carnell. “It’s just yet another thing we wouldn’t need.”
Last year, a one-month slowdown at another major port, Yantian in Shenzhen, caused a backlog of thousands of shipping containers and sent shockwaves through global supply chains.
The shudders in financial markets might be an exaggerated “knee jerk reaction” that doesn’t reflect the “true reality of the situation,” but investors already were uneasy about China and the global economy, said Michael Every of Rabobank.
“We have a whole mountain of problems to worry about, and this is just one foothill among many,” said Every. “If that’s all it is, a COVID lockdown, it’s not difficult to look in recent history books and see how it plays out. But this interfaces with a lot of other issues.”