Shanghai Covid lockdown: City aims to keep business as usual, but obstacles remain

Shanghai authorities pledged on Sunday to allow all businesses to open from Wednesday. The city’s deputy mayor, Wu Qing, announced the easing of restrictions at a press conference, along with a series of 50 new measures being taken to revive the city’s economy.

As of June 1, companies will no longer need the so-called “white list” to have employees working on site. However, those wishing to get to work will still be required to present a negative Covid test 72 hours before using public transport.

Shanghai has been under some form of lockdown since late March, leaving tens of millions of people confined to their homes and leading to high levels of public distress. The restrictions brought down business in virtually every industry and brought the city to a standstill.
Major automakers, including Tesla (TSLA) and Volkswagen (VLKAF)were forced to temporarily suspend production, while electronics manufacturers such as Litter (AAPL) also reported serious supply chain disruptions across the city.
Some companies also operate under so-called “closed-loop” systems, which allow essential personnel to continue working as long as they stay within certain parameters.

On Sunday, officials said they would work to ease Covid’s “irrational” rules. The government also plans to offer tax breaks and rental assistance to businesses and support some construction projects.

It will also reduce the sales tax on some passenger vehicles and provide subsidies for those who replace their cars with purely electric cars, according to state news agency Xinhua. Shanghai recorded zero car sales for the entire month of April.

The worries remain

China’s economy has been hit hard by the pandemic and the government’s “zero Covid” approach, forcing analysts to lower their growth forecasts for the year.

Last week, UBS lowered its GDP estimate for 2022 to 3%, far below China’s official target of 5.5%.

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“Persistent restrictions and lack of clarity on an exit strategy from the current Covid policy will likely dampen business and consumer confidence and prevent the release of pent-up demand,” the bank’s economists wrote in a report.

The gravity of the situation prompted top Chinese officials to hold an emergency meeting last week, at which they pledged to implement further relief measures to help stabilize the economy. This includes small business loans, higher tax refunds and financial support for the aviation industry.

Eric Zheng, president of the American Chamber of Commerce in Shanghai, said that while he welcomed the city’s new measures, they did not alleviate all of his concerns.

“For American businesses, the number one priority is to resume normal operations as quickly as possible,” he told CNN Business.

“[But] all too often, sub-district and even neighborhood officials prevented or delayed the resumption of business operations by imposing excessive bureaucracy”.

Investors across the region appeared to welcome the news on Monday.

Asian markets rose, with Japan Nikkei (N225) index and hong kong Hang Seng Index (HSI) each rising more than 2%. from south korea kospi (KOSPI) jumped 1.2%.
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The reaction is “a clear sign that the light at the end of the Covid lockdown … has gotten a little brighter,” Stephen Innes, managing partner at SPI Asset Management, told CNN Business.

But Chinese markets were quieter. the reference shanghai compound (SHCOMP) The index rose 0.6%, while Shenzhen Composite gained 1%.

“The lukewarm response on mainland stocks suggests that a broader economic reopening may be needed,” Innes said.

— CNN’s Shawn Deng, Elizabeth Yee, and Lauren Lau contributed to this report.

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