Is a recovery in sight as Shanghai ends its two-month lockdown?

crowded tourists in face mask, walking on Nanjing Road in Shanghai

Robert Way/iStock Editorial via Getty Images

Some celebration rang out in Shanghai on Wednesday morning as the city of 25M people ended a more than two-month lockdown that was originally supposed to last nine days. The draconian measures have tested the resolve of China's zero-COVID policy, which seeks to eliminate outbreaks as soon as they occur at just about any cost. China remains one of the only countries in the world to still employ such a strategy, which Communist Party leader Xi Jinping has said is needed to save lives and protect the healthcare system.

Fine print: Hundreds of thousands still remained locked in their homes and Shanghai residents are fearful that restrictions can return. While steps are being taken towards a reopening, things are still far from normal with checkpoints and quarantine centers blanketing the commercial hub. Shops are not operating at full capacity, indoor dining in is not allowed, theaters and gyms remain closed and most children are still attending school online.

Meanwhile, Shanghai residents will have to obtain a negative COVID test every 72 hours to take public transport and enter public venues (strict quarantine is in store for anyone testing positive and their close contacts). Any resident traveling to another city in China also faces quarantine of between 7-14 days on their return. Doubling down on a mass testing strategy, tens of thousands of testing booths are additionally being set up across China's largest cities, while "permanent" coronavirus hospitals are being established for the future.

Economic angle: Business activity and manufacturing in China somewhat recovered in May, but many analysts expect the economy to contract in the second quarter. The domestic recovery for the world's second largest economy is set to be a grinding process, which will be highly dependent on future COVID developments and the resumption of local consumption. "The sluggish credit demand points to worsening expectations among market entities and slowing business expansion," added Xing Zhaopeng, senior China strategist at Australia & New Zealand Banking Group.

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