Abstract: Recently, as the Covid-19 outbreak has been gradually brought under control in Shanghai, the resumption of work and production is also accelerating. On May 16, the executive meeting of the Shanghai Municipal Government emphasized the need to strengthen anti-pandemic measures, coordinate pandemic control and socio-economic development, and speed up the resumption of work and production and economic recovery.
The Shanghai New Finance Research Institute (SFI) recently released a briefing paper on the resumption of work and production in Shanghai, authored by its Vice President Liu Xiaochun. The paper points out that this round of Covid-19 outbreak is very different from the one in 2020. To maintain and enhance Shanghai’s status as a hub of economy, finance, trade, shipping, and technological innovation, we need to recognize that it will be an uphill task ahead to restore work and production. The authorities should formulate top-level design that includes the following policy measures:
- Issuing digital RMB to boost consumption and leveraging multiple measures to repair the capillaries of urban operations;
- Cutting taxes to revitalize the market entities;
- Helping relevant provinces and businesses restore logistics and supply chains under the Yangtze River Delta integration framework;
- Adopting new opening-up policies based on new conditions to stabilize and attract foreign investment;
- Formulating detailed, comprehensive, and dynamic plans for the resumption of work and production;
- Sticking to the “dynamic zero-Covid” approach, improving the combination of prevention tactics, and taking vaccination rate into policy consideration.
I. CONSIDERING THE DIFFICULTY OF RESUMING WORK AND PRODUCTION IN POST-COVID SHANGHAI, WE SHOULD PLAN AHEAD AND START AS EARLY AS POSSIBLE
At a press conference held on May 17, Zhao Dandan, the deputy director of the Shanghai Municipal Health Commission, said that Shanghai has cut off the community transmission of Covid-19 in all of its 16 districts.
What happened during this round of outbreak has further exposed Shanghai’s pivotal role in China’s economy and global supply chains. Experience from the past 2 years shows that regional covid outbreaks and the resultant disruption to a single node of the supply chain tends to paralyze the whole supply chain. As pandemic control is unsynchronized in different regions, the disrupted supply chains cannot resume simultaneously. Instead, they recover as they reshape. Businesses that fall out of sync with the pace of the resumption might be kicked out of the chains.
This round of pandemic outbreak is very different from the first round in 2020. To maintain and enhance Shanghai’s status as a hub of economy, finance, trade, shipping, and technological innovation, we need to recognize that it will be an uphill task to restore work and production, and thus we should plan ahead and start as early as possible.
1. Shanghai’s central place in the supply chains determines that the production resumption needs systematic planning for the whole supply chain.
Shanghai occupies a central position in the supply chains of many high-end products that are intricate and extend beyond the neighboring region to the world. While small enterprises with short supply chains can restore work and production individually, the resumption of key enterprises relies on the recovery of not only themselves but also their upstream and downstream partners who in turn depends on the recovery of their own upstream and downstream partners.
Meanwhile, it will not be an effective resumption of operations if a business only has its workers back without on-site managers and technical staff. In this sense, it is easier for small businesses with shorter supply chains to resume production. What’s more, the production also requires the in and out of raw materials and finished products, so the resumption will not be effective before logistics returns to normal.
According to the People's Daily, 4,400 out of 9,000 industrial enterprises above the designated scale in Shanghai have resumed operation, but it is still necessary to further assess whether the whitelist method, which is based on individual enterprises in key industries, can meet the needs of Shanghai as a hub for supply chains of high-end products.
2. The uncertainty of the recurring pandemic throws cold water on companies that wish to resume work and investment.
Drawing from what happened during SARS in 2003, many companies in 2020 were certain that operations would resume once the pandemic is over. Some are looking for new investment opportunities even during lockdowns.
They did not expect the cunning virus mutations to have plagued humans since then. Unsure about how the pandemic will evolve, some enterprises are now hesitant to restart operations and reluctant to make new investments.
3. The impact of labor and talent mobility on the speed and effectiveness of the resumption of work and production should be closely monitored.
Wuhan closed the city before the Spring Festival at the beginning of 2020, and other cities went into lockdowns during the Spring Festival when people were on holidays either in their hometowns or traveling. As a result, the separation of workers and workplaces became a major constraint on the resumption of work and production when the lockdowns were lifted.
In the past two years, authorities have been encouraging people to “celebrate in place”, which has reduced the risk of Covid transmission and avoided the separation of labor and workplaces after the holidays. What happened in 2020 will not happen to Shanghai, as its labor force has largely remained where they are.
However, some trends need to be closely monitored, such as whether migrant workers are planning to return to their hometowns or move to other cities, and whether top talents are reconsidering the choice of city for them and their families to live. Migrant workers and top talents are highly mobile. Their individual decisions may have an impact on the speed and effectiveness of the resumption of work and production in Shanghai, and even on the city’s medium- and long-term development.
4. The recovery of “capillaries” is important for the resumption of work and production.
The digital economy contributed enormously to the fight against Covid in 2020, and it was underpinned not only by networks and platforms, but also by a vast number of efficient logistics and delivery staff. The capillaries of society remained functioning despite the pause of production activities during that round of outbreak.
The rapid and full recovery of a city’s capillaries is an important basis for the recovery of the supply chains. For example, currently whitelisted companies are given permission to restart operations as long as they can keep their workers in factories under closed-off management, but many of the workers are unable to reach production sites, and many factories do not have the conditions for 24-hour working and living. In addition, if this state of affairs were to persist for a long time to come, it would need to be supported by a dedicated life-support system. It is conceivable that if a large number of the small businesses that keep the city running close down and the workers leave Shanghai, the city will operate much less efficiently and will face more obstacles to resuming work and production.
5. It is essential to watch closely the behaviors of foreign-funded enterprises and stabilize the fundamentals of foreign investment and trade.
Major economies and multinational companies have been concerned with the security of supply chains since the China-US trade conflicts broke out. In the past two years, due to the spread of the pandemic around the world, multinational companies have started to relocate their supply chains to enhance security and resilience. However, in the meanwhile, they have more trust in the completeness of China’s industrial system and the resilience of its supply chains. Despite relocation efforts, China still remains the center of supply chains of multinational companies.
When China resumed work and production in 2020, the rest of the world was suffering from wide spread of the pandemic. Supply chains around the world were disrupted, highlighting the resilience of supply chains in China. This time, when Shanghai started to resume production, foreign countries are already in the stage of economic recovery, so the situation is different.
With the resurgence of the pandemic in the last two months, foreign-funded enterprises are entertaining the idea of moving their supply chains out of China, according to surveys by a number of chambers of commerce. Some of them have put backup manufacturing sites in Southeast Asia into service. If these sites operate well, production bases in Shanghai may be phased out during a new round of supply chain restructuring. This possibility should not be neglected and must be fully considered during the resumption of work and production.
II. POLICY SUGGESTIONS: RESUMPTION OF WORK AND PRODUCTION REQUIRES TOP-LEVEL DESIGN AND MULTIPLE MEASURES
The important status of Shanghai gives the resumption of work and production overall significance, and top-level policy design must be put in place.
1. Issue digital RMB to boost consumption, and leverage multiple measures to repair the capillaries of urban operation
First, it is recommended that the government of Shanghai and the People’s Bank of China join hands to expand consumption scenarios for digital RMB in a timely manner and issue digital RMB to individuals to promote targeted consumption, so as to repair the capillaries of the city’s operation as soon as possible, and lay a solid foundation for the resumption of work and production. Increasing the transaction scale of digital RMB and the number of wallets, and distributing digital RMB to residents in Shanghai can stimulate consumption and bring closer the relationship between citizens and the government. Recipients should not be limited to permanent residents. Rather, with the help of big data collected from Covid testing, all the people living in Shanghai, regardless of their nationality, should be eligible. For the elderly group, it’s better to send cash directly.
Second, financial institutions should be encouraged to provide support to pandemic-impacted individuals and business entities, especially SMEs, self-employed individuals and those hit by the pandemic, by allowing deferred repayment of business loans and mortgage loans. It’s recommended to temporarily ease repayment pressure facing companies and individuals by adjusting billing plans, among other arrangements. Overdue loans that cannot be repaid in time due to the impact of the pandemic should not be recorded and reported; as for those that are reported, procedures to correct credit score should be initiated to cancel the report.
Third, provide subsidies to SMEs, especially small traders. For example, the government has already introduced policies to exempt small and micro enterprises that rent state-owned properties from property rents. However, businesses that rent private properties do not enjoy such benefits.
A possible way to help these SMEs or service providers (barbershops, gyms, etc.) is to provide subsidies based on the proof of rent payment. Such businesses not only provide a large number of jobs, but are the capillaries of urban operations. Offering subsidies to them can not only stabilize business operation and employment, but also benefit property owners.
In short, while promoting consumption, it is necessary to keep businesses and workers in the city, and avoid periodic loss of personnel and talents. Only with these people staying in Shanghai, can the capillaries of urban operation quickly revive, consumption increase, and the resumption of work and production have a foundation.
2. Cut tax to revitalize the market
Some of the businesses, especially SMEs, will no longer be able to keep running after the lockdown is lifted, and those that have managed to survive will also face difficulties getting back on their feet. It’s critical to build confidence in the city’s recovery. Ponderable moves include some of the measures China used to attract foreign investment in the past. For example, in order to boom investment, all the businesses incorporated in 2022 could be given tax cuts and exemptions. Existing businesses, especially SMEs, could also be included. In one word, Shanghai needs to take pragmatic and effective measures to quickly increase the number of market participants and improve market atmosphere.
3. Restore logistics and supply chains under the Yangtze River Delta integration framework
This wave of Covid resurgence has further manifested the role of Shanghai as a national or even global hub. Experience over the past two years shows that incapacitated nodes often find it difficult to insert themselves into the new supply chain once it has taken shape. Shanghai faces fierce competition for its position in the supply chains of various products, and any slow move could mean lost chances.
Therefore, when we talk about the resumption of work and production in Shanghai, we needs to look beyond the city itself. Authorities needs to focus on supply chains today and in the future and take proactive actions, introduce substantive policies at both national and regional level, and help connect major businesses along the supply chains with local governments and their transport departments in the Yangtze River Delta region in order to accelerate supply chain recovery. This could also inject new momentum into regional integration, consolidate and improve Shanghai’s status as an international hub for economy, finance, shipping, trade, and technological innovation.
4. Step up or bring forward the implementation of various opening-up policies as proposed, and introduce new measures based on new conditions to stabilize and attract foreign investment
Shanghai could use the opportunities brought by the China International Import Expo to show the world its dedication to opening up, so as to attract more foreign businesses and investments. After bringing Covid under control, the local government could plan for publicity strategies and “go out” to advocate the city’s business environment, culture and opening-up measures, and help connect businesses with other participants along their supply chains. Introducing investment, technology and talents will help the city consolidate and develop supply chains.
5. Formulate detailed, comprehensive, and dynamic plans for the resumption of work and production
Such plan should focus on the whole picture of supply chains and economic operation. Tailored plans for restoring production should be prepared for businesses along the supply chain with effective Covid prevention measures, so as to enable effective recovery while preventing Covid resurgences.
6. Stick to the “dynamic zero-Covid” approach, and improve the combination of prevention tactics
It’s critical to hold on until Covid is brought safely under control, in order to consolidate the hard-earned progress in reducing infections. Shanghai should continue with the “dynamic zero-Covid” approach, prevent both the import of cases and domestic resurgence, and adjust prevention measures as situations change, so as to guarantee rapid and robust economic reopening.
Vaccination rate should be taken into account when implementing pandemic controls. For example, at the regional or city level, control measures such as testing, isolation, hospitalization and community control should be carried out based on the level of vaccination rate and the phase of the outbreak in order to achieve the “dynamic zero” goal.
At the industry level, such as for the logistics or delivery sector, a target for the vaccination rate (for the second shot or the booster) could be implemented in addition to regular Covid tests so as to prevent new cases and maintain normal operation.
At the business level, employees are required to take Covid test and get vaccinated before returning to work. Applicable measures include checking their health code, travelling code, Covid test code and vaccination code.
Going forward, in addition to Covid tests, vaccination could also be routinized and given higher priority. This could also boost China’s vaccine development and production capacity.
The article is based on a SFI briefing paper, authored by Liu Xiaochun, Vice President of SFI. It was published on CF40 WeChat blog on May 20, 2022. The English text was translated by CF40 and has not been reviewed by the author. The views expressed herein are the author’s own and do not represent those of CF40 or other organizations.
