THE EASING OF the lockdown in Shanghai on June 1 may prove the most crucial stimulus measure that authorities take to revive China’s economy and get it anywhere near the official target of 5.5% GDP growth this year.
The more-than-two-month-long lockdown has not been lifted entirely, though there is no staggering of the easing. Most people can move more freely around the city, provided they can show a green health code on their smartphone. Public transport within the city has restarted. Crucially, many businesses are reopening their doors, with in-person customers having to show a negative Covid test within the previous month 72 hours.
However, 10% of the population of 25 million residents in high-risk areas will remain confined at home. Confirmed Covid cases and close contacts still face quarantine or hospitalisation. A localised outbreak risks the reimposition of a neighbourhood lockdown. Residents returning from trips outside the city still need to quarantine. Schooling remains remote, and places of mass entertainment remain shut.
Nonetheless, word reaches this Bystander that the mood in the city is far more one of celebration and relief than the noble forbearing that official media portrays. That, in itself, is likely sending a message to city officials, who have not emerged from the lockdown covered in glory.
Residents have been angry at the strictness of the measures, city officials’ ineptness in enforcing them, leading to, for example, food shortages, and the fact that much of the financial aid has gone to businesses and factories, not to households.
The economic cost has been tremendous. An academic paper published earlier this year gives a sense of the likely scale of the cost — full percentage points of GDP. Shanghai is the country’s biggest and most affluent city and its financial, commercial and international business hub. It accounts for 3.8% of China’s GDP and 10.4% of China’s trade with the rest of the world (2021 data).
It will likely take months for the city’s economy to be operating at anything like normal again, not least because supply chains need to stabilise first.
The manner of the easing of the lockdown allows both President Xi Jinping and Premier Li Keqiang to maintain their positions on the need for the zero-Covid policy and the need to reopen an economy facing multiple headwinds, respectively.
Earlier this week, government departments started to flesh out the details of the 33-point stimulus package that Li announced on May 23. The measures are broad-ranging, including tax cuts, business subsidies and loans, and infrastructure investment. As important as staving off a potential recession, the stimulus aims to stabilise employment, the government’s short-term priority.
The measures also included initiatives such as streamlined customs and immigration intended to bolster the confidence of foreign firms manufacturing in China who might be thinking this is a time to look elsewhere.
The critical but beleaguered property sector has had separate support measures, including interest rate cuts.
The economic impact of getting Shanghai back to normal business would mean more to the national economy than all of the above.
Shanghai’s lockdown has been the most disruptive but only one of several in major cities that have provided a stark reminder of China’s willingness to throw the economy into turmoil when political priorities demand it.
As Li has repeatedly warned, the official target of 5.5% GDP growth is undoubtedly out of reach. Much has been speculated about a rift between Xi and Li ahead of the autumn’s Party Congress, the truth of which is probably impossible to know. Sometimes, economic tumult is just economic tumult.