Shanghai lockdown: Economy shaken by zero-Covid measures

From Tesla's giga factory to a huge Disney resort, many multinational companies have their Chinese foothold in Shanghai.

But in recent days the usually bustling financial centre has been stopped in its tracks after a spike in coronavirus cases.

With little notice, officials imposed two staggered waves of lockdowns on the city's more than 26m residents. The eastern side of Shanghai has just been through four days of tight restrictions. The western part began its four-day isolation on 1 April.

The latest round of quarantining is China's largest since the coronavirus outbreak was first identified in Wuhan at the end of 2019.

This lockdown could turn out to be particularly costly for the world's second largest economy.

As well as being a major focus of the financial industry, Shanghai is a hub for semiconductor, electronics and car manufacturing. It is also the world's busiest shipping port.

Xu Tianchen, China economist for the Economist Intelligence Unit said short-term supply chain disruptions will have an impact on China's economy as a whole.

"There will also be ripple effects elsewhere because of the interconnectedness between Shanghai and other regions of China, especially the manufacturing hub of the Yangtze River Delta," he said.

On a more local level, the city known for its high-end storefronts like Gucci and Louis Vuitton has already seen consumer spending slump.

Lost business at retailers, hotels, and restaurants could directly cost Shanghai 3.7% of its annual Gross Domestic Product (GDP), according to Mr Xu.

GDP is a key measure of the health, or otherwise, of an economy.

China's growth target

The Chinese government has set a target for the country's GDP to grow by 5.5% this year. But some analysts have said it will struggle to meet that goal.

At the end of last week, data pointed to a slowdown in March for China's manufacturing and services sectors.

It came after the technology hub Shenzhen and Jilin in China's industrial north-east last month also faced lockdowns so that officials could conduct mass coronavirus testing and try to curb the spread of the highly transmissible Omnicron variant of Covid-19.

"We have seen PMI data, which shows that both manufacturing and services sectors are actually hit hard. And that has not included the Shanghai lockdown. So I think qualitatively we're seeing more downside pressure for the first and second quarters of GDP data," according to Peiqian Liu, China economist for NatWest Markets.

PMI data is a summary of market conditions gathered through surveying senior executives in key industries about their expectations for a number of factors including new orders, production and employment.

With the number of coronavirus cases rising, there could also be more trouble ahead if there are further lockdowns, especially for small business owners.

"The focus is much more on how employment is going to hold up in a prolonged lockdown or extended period of uncertainties of lockdown due to outbreaks.

"So I think the service sector is not only facing a short-term pressure from a three-week lockdown from Shenzhen or a one-week lockdown from Shanghai, but facing much more pressure from the uncertainty that's going down the road with current set of Covid management policies," Ms Liu said.