Posted BY: Zero Hedge

Just over a week after we reported that “Shanghai was finally lifting its Covid lockdown“, China’s commercial capital is once again backsliding into the warm embrace of Wuhan’s proudest export, and will “briefly” lock down most of the city this weekend for mass testing as Covid-19 cases continue to emerge, causing more disruption and triggering a renewed run on groceries days after exiting a grueling two-month shutdown.

According to Bloomberg, the plan emerged from one area with a handful of cases, then spread in hours to 15 of the financial hub’s 16 districts, and now encompasses almost all of the city’s 25 million residents as health officials use testing to root out any silent transmission of the virus, a key tool in China’s “Covid Zero” arsenal.

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The instant escalation reflects the worry that continues to shroud Shanghai (and also Beijing), which implemented one of the world’s strictest lockdowns in late March after a sluggish initial response to its outbreak. The newest move follows a rebound in infections within the community to six on both Thursday and Friday, up from zero a day earlier. Residents will be released after taking the tests, but they’ll be back under lockdown if new infections are found in their compounds.

There were 5 additional infections found among people in quarantine on Thursday, for a total of 11 cases in the financial hub, health officials said. Nationwide, China added 71 infections a far cry from the record high near 30,000 in April.

The threat of disruptive measures also returned to Beijing, where testing turned up 21 new local cases as of 3 p.m. on Friday. More than 4,400 people who were in close contact with those who were infected have been sent to government-mandated quarantine facilities.

As Bloomberg details, several neighborhoods in the capital’s key Chaoyang district, home to company headquarters and embassies, were on alert after a flareup in a local bar ended a five-day streak of zero community spread on Thursday. There were two new infections found outside of quarantine there on Friday.

The return of restrictions and mass testing in China’s biggest cities underscores the difficulty of eliminating the virus while the rest of the world accepts it as endemic. The disruption wrought by pandemic curbs have impacted production at companies like Sony Group Corp. and Tesla, with the electric-car maker only now normalizing operations at its factory in southern Shanghai. 

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The latest moves hit home quickly for residents. It led some to flee their apartment complexes and sparked a run on grocery stores after many struggled to get fresh fruits and vegetables in the early days of the original lockdown. While the latest curbs may lift in as little as a few hours if no new infections are found, two more weeks of isolation may be imposed for areas where new chains of transmission are uncovered.

Most economists say it will be tough for China to meet its annual growth target this year because of lockdowns. By having zero tolerance for new cases, the country risks being in a constant loop of imposing and easing restrictions.

Still, President Xi Jinping continues to emphasize the country’s adherence to a policy that has delivered one of the lowest Covid death rates in the world. Xi called for Covid Zero to be adhered to “unwaveringly” in a visit to Sichuan province Thursday, according to the official Xinhua news agency, while stating that it should be achieved in balance with the needs of the economy.

For now, the renewed restrictions aren’t yet having a significant impact on the financial markets.China’s benchmark CSI 300 Index rose 1.52%, paring earlier losses. For the week, it’s up about 3.5%.

“Investors are watching but there is not much reaction at the moment given its just flare ups,” said Kevin Li, fund manager at GF Asset Management (Hong Kong) Ltd. “If it expands into more areas that affect people turning to work, then it will lead to some volatility.”