Total Disaster: Shanghai’s Shutdown Puts Small Businesses at Risk

Cotton Ding’s heart plummeted when more than 26 million Shanghai residents were placed under lockdown last week.

“We’ve been fighting the epidemic since 2020, and we’ve seen a lot of changes in the last two years,” Ding, who runs two restaurants in ancient colonial mansions in the center of the former French Concession, told Al Jazeera.

“We were finally getting back on our feet, business had returned and was doing a little better, and then the current outbreaks and lockdowns struck.”

Ding’s biggest season is often spring, with guests taking advantage of her green terrace to enjoy the mild Shanghainese weather.

Instead, she described business as a “complete disaster” as a result of the lockdown, which officials this week extended to include the entire city permanently after a two-phase lockdown imposed on March 28 failed to contain coronavirus outbreaks.

“Typically, we employ and educate new workers to cater to this period, improve our furniture arrangements, and bring the garden to life,” she explained.

“We have now been instructed to close our doors, and we expect to be closed for most of April.”

Ding stated that she had no clue when she will be ready to reopen or resume operations at full capacity.

“The worry has made it impossible for me to sleep,” she explained.

Authorities in China’s most populous city have recorded more than 114,000 cases since the beginning of March, greatly surpassing the national total of the previous two years. Shanghai registered 19,982 cases on Thursday, its highest daily total to date.

Chinese officials have called the outbreak as “very grave,” and have mobilized tens of thousands of healthcare professionals, including military troops, to help restrict infections in the city.

Despite this, officials have failed to register any deaths in the city, fueling skepticism about China’s official data.

There is evidence that public patience is running thin as the economic toll of China’s zero-tolerance policy on the virus, dubbed “dynamic zero COVID,” mounts.

Residents are unable to obtain basic essentials like food and water owing to the continued closure of stores and the overburdening of delivery services, according to videos circulating on social media. Other locals have complained in recordings about congestion and unclean conditions at the city’s mass quarantine centers, such as dirty communal toilets and a lack of showering facilities.

In one video, a lady begs to be let leave her property so that her husband may receive cancer treatment. Residents were also outraged by the removal of COVID-positive children from their parents, prompting officials to cave to public pressure and scrap the program on Wednesday.

A prolonged closure of China’s industrial behemoth would have far-reaching economic ramifications both at home and abroad. Shanghai is the country’s major financial and manufacturing center, with its production accounting for 4% of China’s GDP (GDP). The city is also home to the world’s largest port, which handles around 20% of China’s outside exports.

According to Xia Le, chief Asia economist at Banco Bilbao Vizcaya Argentaria (BBVA), the economic impact of the shutdown would be determined by its duration.

“If the lockdown just lasts two months, say April and May, China’s growth would be reduced by 0.3-0.5 percent this year,” Xia added. “If the lockdown continues into the third quarter, China’s growth will be reduced by 1.5-2 percent.”

According to Xia, if the lockdown continues until June, China would be unable to fulfill its 5.5 percent official growth target, “even if authorities implement more pro-development initiatives.”

Beijing has warned of significant headwinds to the economy this year, including the impact of the epidemic, but has shown no indication that it plans to change its zero-tolerance policy substantially.

According to official Chinese government statistics, the country’s services sector dropped at the fastest rate in two years in March, with the non-manufacturing Purchasing Managers’ Index (PMI) plunging to 48.4 from 51.6 the previous month.

A survey of the private sector shows an even bleaker picture. According to Caixin data issued on Wednesday, China’s PMI plummeted to 42 in March from 50.2 in February, the lowest level since the epidemic began in February 2020.

“Overall, both industrial and service activity declined in March as a result of the outbreak,” said Caixin Insight Group senior economist Wang Zhe in a statement. “As with earlier COVID outbreaks in China, the services sector was more severely hit than manufacturing.”

“Policymakers should keep an eye out for vulnerable populations and strengthen assistance for critical industries, small and micro firms, and start-ups to help stabilize market expectations,” Wang added.

As the rest of the world learns to live with the virus, China’s unusually tight measures have sparked concerns about the country’s competitiveness in a global market where pandemic limitations are generally a thing of the past.

“In a truly ‘open’ economy, Chinese exporters would lose more orders to overseas competitors,” Xia, the BBVA economist, said. “Before reopening its economy, China is projected to attract less foreign direct investment.” Meanwhile, overseas investors may lose interest in Chinese assets.”

According to Xia, the zero COVID policy will not be viable in the long run.

“I’m not suggesting they should abandon this plan right once,” he added, “but it’s time to examine the strategy and make the adjustment at some point.” “A prudent transition strategy will strike a decent balance between saving lives and preserving economic success.”

Stress and anxiety

The previous few weeks have been financially devastating for Ding, a Shanghai restaurant.

“It has completely wrecked our financial flow,” she explained. “As a small firm, we will be unable to pay our rent, employees, and suppliers immediately.” It will take us years to pay off our obligations.”

Ding expressed worry for the well-being of her 50 staff, for whose livelihoods she felt responsible.

“Uncertainty has caused them a great deal of anxiety and stress,” she explained. “I communicate with them on a regular basis, and they tell me they are frightened and restless.”

The Chinese government has provided limited financial assistance to firms, including 140 billion yuan ($22 billion) in tax relief and a three-month rent exemption for small renters at state-owned enterprises.

“It is a tiny proportion of our losses, and if you don’t make anything, there isn’t much tax to pay anyhow,” Ding explained.

“Unfortunately, both of my sites are privately held, thus I will not be eligible for the exemption.” I’ll try to negotiate a reduction with my landlords personally, but given that one of them just tried to raise the rent by 15%, it may be difficult.”

Adam Torkildson
Adam is a proud American citizen, entrepreneur, 2x founder, father of 2, and married. He considers himself a Constitutional Conservative and loves to golf and read books when he's not running his businesses and writing content.