Locked-down Shanghai finds new cases, breaking ''zero COVID'' streak

By Brenda Goh and Martin Quin Pollard

SHANGHAI/BEIJING (Reuters) -Shanghai announced its first new COVID-19 cases outside quarantined areas in five days on Friday and imposed stricter curbs in two districts, but did not signal any change to the planned end of a prolonged city-wide lockdown on June 1.

The commercial hub of 25 million, in its seventh week of lockdown, has been slowly allowing more people to leave their homes in recent days, with many residential compounds issuing passes for brief walks or trips to the supermarket.

But in a sign of the challenges of China's "zero COVID" policy - at odds with the resumption of normal life in the rest of the world - authorities in Shanghai's Qingpu said on Friday it had sealed off and disinfected several places and tested more than 250,000 residents after discovering three cases.

Another district, Hongkou, on Friday afternoon ordered all shops to shut and residents to stay home until at least Sunday as it plans to carry out mass testing. It did not say why it had taken the action.

"Our district will carry out three consecutive rounds of PCR tests for everyone," authorities in Hongkou, home to more than 750,000 people, said on its official WeChat account.

"During this screening, all supermarkets, street-side shops must stop operations, everyone should not leave their homes."

Earlier on Friday, other Shanghai officials said steps in the gradual re-opening of Shanghai were going ahead, with suburban parks due to open from Sunday. Other parks could open from June if they met certain conditions but leisure facilities in parks would remain closed.

A plan to reopen four metro lines from Sunday also remained on track, the city government said.

Beijing, China's capital of 22 million people, has struggled to end an outbreak since late April despite significant curbs on movement, with many residents working from home and a range of shops and venues closed.

But its daily caseload has remained in the dozens rather than exploding like Shanghai's outbreak did. Beijing reported 62 new COVID infections for May 19, up from 55 a day earlier.

In the capital's biggest district Chaoyang, a football pitch popular with children was chained shut, covered with coils of barbed wire and signs saying "Temporarily closed during the epidemic".

Nearby, young couples briefly perched together beside a canal on what is one of China's unofficial Valentine's days, before security personnel approached with a loudspeaker with a message reminding people not to gather.

'NEW NORMAL'

On Friday, Shanghai reported a broad economic decline in April, with many factories shut and consumers stuck at home. The city's industrial output shrank 61.5% from last year, the biggest monthly decline since 2011.

Retail sales dived 48.3%, significantly steeper than the 11.1% drop nationally, and property sales by floor area sank 88%, according to a Reuters calculation.

The European Chamber of Commerce in China warned this week that many companies and individuals were "seriously considering their China presence" even though this month the COVID situation in Shanghai and more broadly in China has improved.

Analysts at Gavekal Dragonomics estimate fewer than 5% of Chinese cities are now reporting infections, down from a quarter in late March.

Many cities have set up municipal border controls, conduct frequent mass testing and monitor and isolate new infections, including through building lockdowns.

"This new normal should allow manufacturing supply chains to gradually resume normal operation, but will continue to weigh on consumption, the services sector and small business," Gavekal analysts wrote in a note.

RATE CUT

There have been signs of the economy responding to the looser controls in May after the April contraction.

Daily container throughput at Shanghai ports has almost recovered to last year's levels, while air cargo throughput and freight vehicle traffic have bounced to about two-thirds of 2021 volumes.

While still down 21% from last year, retail car sales jumped 27% in the first half of May from the same period in April, data showed.

China's yuan looked set for its biggest weekly gain in a year, snapping six straight weeks of losses. Stocks also rose.

Policymakers have promised more fiscal and monetary stimulus to help the economy.

China cut its benchmark reference rate for mortgages by a bigger margin than expected at its May fixing on Friday, a second reduction this year, as the government aims to revive credit demand.

Property and related industries such as construction account for more than a quarter of the economy and were in a downturn even before the lockdowns. A campaign by the authorities to reduce high debt became a liquidity crisis last year for some major developers, resulting in bond defaults and projects being put on hold, unsettling global financial markets.

Xing Zhaopeng, senior China strategist at ANZ, predicted further easing, saying: "Policymakers might have reached a consensus on whether to revive the property sector."

(Reporting by Brenda Goh, Winni Zhou, Yifan Wang, Martin Quin Pollard and the Beijing and Shanghai bureaus; Writing by Marius Zaharia and Marius Zaharia; Editing by Himani Sarkar, Robert Birsel)