“Total disaster”: Shanghai confinement hammers small businesses | Coronavirus pandemic

Hong Kong, China – When more than 26 million Shanghai residents were locked down last week, restaurateur Cotton Ding’s heart sank.

“We have been battling the pandemic since 2020, and over the past two years we have seen many changes,” Ding, who owns two restaurants located in historic colonial villas in the heart of the former French Concession, told Al Jazeera.

“We were finally getting back on our feet, business had picked up and been doing a bit better, and then the recent outbreaks and lockdowns hit.”

Spring would normally be Ding’s busiest time, with guests taking advantage of its leafy patio to take advantage of Shanghai’s balmy weather.

Instead, business has been “an utter disaster”, she said, due to the lockdown, which authorities extended this week to cover the entire city indefinitely after a two-phase lockdown brought in the March 28 failed to bring coronavirus cases under control.

“Usually we hire and train new staff to respond to this period, improve our furniture settings and bring the garden to life,” she said. “Now we have been ordered to close our doors and expect to be closed for most of April.”

Ding said she has no idea when it will be able to reopen or return to full capacity.

“The worry didn’t let me sleep well at all,” she said.

Record case

Since early March, authorities in China’s most populous city have reported more than 94,000 cases, far exceeding the nationwide case count of the previous two years. On Wednesday, Shanghai recorded 17,007 cases, its highest daily figure yet.

Chinese authorities have described the outbreak as “extremely grim” and sent tens of thousands of healthcare workers to help contain infections in the city, including military personnel. Nevertheless, authorities have yet to report any deaths in the city – an anomaly that has fueled skepticism about China’s official figures.

Amid the growing economic toll of China’s zero-tolerance approach to the virus, known as “COVID zero momentum”, there are signs the public’s patience is running out.

Videos circulating on social media showed residents struggling to buy basic necessities like food and water as supermarkets closed and delivery services were overloaded. Other residents posted videos complaining about overcrowding and unsanitary conditions at the city’s mass quarantine centers, including dirty communal toilets and a lack of showers. In a video posted online, a woman can be seen begging to leave her pregnant body to get her husband treated for cancer. Residents also expressed outrage over the separation of COVID-positive children from their parents, leading authorities on Wednesday to bow to public pressure and drop the policy.

A prolonged shutdown of China’s economic powerhouse would have far-reaching economic consequences in the country and beyond. Shanghai is the country’s most important financial and manufacturing base, with production accounting for 4% of China’s gross domestic product (GDP). The city is also home to the world’s largest port, handling around 20% of China’s overseas exports.

Xia Le, chief economist for Asia at Banco Bilbao Vizcaya Argentaria (BBVA), told Al Jazeera that the economic impact of the lockdown will depend on how long it lasts.

“If the lockdown lasts only two months, say April and May, it will reduce China’s growth by 0.3-0.5% this year,” Xia said. “If the lockdown lasts through the third quarter, it will reduce China’s growth by 1.5-2%.”

Xia said China would not be able to meet its official growth target of 5.5% if the lockdown continued beyond June “even if the authorities were to roll out more pro-growth policies”.

China’s service sector shrank at fastest pace in March in two years, official statistics show [File: Lim Huey Teng/Reuters]

Beijing has warned of strong headwinds the economy will face this year, including the effect of the pandemic, although it gave no indication it intended to fundamentally change its approach. zero tolerance.

Activity in the country’s services sector contracted at the fastest pace in two years in March, official Chinese government data showed, with the non-manufacturing Purchasing Managers’ Index (PMI) falling to 48, 4, compared to 51.6 the previous month.

A private sector survey paints an even bleaker picture. According to a report by Caixin on Wednesday, China’s PMI fell to 42 in March from 50.2 in February, the lowest level since the pandemic began in February 2020.

“Overall, manufacturing and service activities weakened in March due to the epidemic,” Wang Zhe, senior economist at Caixin Insight Group, said in a statement. “Similar to previous COVID outbreaks in China, the service sector has been more significantly impacted than manufacturing.”

“Policymakers should seek out vulnerable groups and strengthen support for key industries and small and micro enterprises to stabilize market expectations,” Wang said.

As the rest of the world learns to live with the virus, China’s particularly tough policies have also raised questions about its competitiveness in a global economy where pandemic restrictions have mostly been consigned to history.

“Chinese exporters will lose more orders to overseas competitors in a truly ‘open’ economy,” said Xia, the economist at BBVA. “China should have less foreign direct investment before reopening its economy. Meanwhile, international investors may become less interested in Chinese assets.

Xia said the zero COVID strategy would not be sustainable in the long term.

“I’m not saying they should abandon this strategy immediately, but it’s time to reevaluate the strategy and make the change at some point,” he said. “A sensible transition plan will strike the right balance between saving lives and maintaining economic prosperity.

Anxiety and stress

For Ding, the Shanghai restaurateur, the past few weeks have been financially crippling.

“It totally destroyed our cash flow,” she said. “As a small business, we will not be able to pay our rent, staff and suppliers immediately. It will take us years to pay the debts.

Ding expressed concern for the well-being of her 50 employees, whose livelihoods she feels responsible for.

“The uncertainty caused them a lot of anxiety and stress,” she said. “I am in contact with them daily and they tell me that they are worried and feel unsettled.”

Chinese authorities have offered financial support to businesses, including 140 billion yuan ($22 billion) in tax breaks and a three-month rent waiver for small tenants of public entities.

“It’s a tiny fraction of our losses and if you don’t win anything, there’s not a lot of tax to pay anyway,” Ding said.

“Unfortunately for me, my two pitches are private and I will not benefit from the exemption. I will try to negotiate a discount directly with my landlords, but since one of them was trying to raise the rent by 15% recently , this could be a tough business.

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