Shanghai’s easing lockdown gives world economy a much-needed boost

World markets have shared a sigh of relief as Shanghai announced huge changes to a Covid-19 lockdown that has strangled the global economy.

China will ease Covid restrictions in Shanghai after enforcing one of the world’s most brutal lockdowns and sparking a global supply chain crisis.

The financial hub’s 25 million-odd residents were forced to struggle through six weeks of a grinding lockdown as China attempted to achieve Covid-zero.

As a result of the radical lockdown, congestion and delays butterflied out to impact major ports around the globe - including Australia.

But now China has vowed to end lockdown and reopen factories and businesses - which is good news for Australia’s iron ore and lithium-heavy economy.

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Shanghai has been under strict lockdown as China pursues Covid-zero.

Industry has been slowly allowed to recommence after the lengthy lockdown period.

The reopening of Shanghai has improved the outlook for iron ore, oil and lithium.

Shanghai will “eliminate unreasonable restrictions … and abandon the approval system for work and production by enterprises”, the city’s Vice Mayor Wu Qing told a news briefing on Sunday.

Mr Wu announced a slew of measures to shore up Shanghai’s virus-battered economy, including cutting property taxes, subsidising gas and electricity for businesses and ordering banks to lend more to small and medium-sized enterprises.

“From tomorrow all the factories around Shanghai are allowed to start reopening again,” Sky News business analyst Edward Boyd said.

“I don’t think they’re going to be running at full capacity – but it is good news for Australia’s resources companies that supply a lot of the iron ore they use, particularly in those steel mills.

The outlook for China’s electric vehicle market has also improved as restrictions on mobility ease, meaning greener pastures for lithium sellers Down Under.

Lithium companies in China have also increased their share market value in the past couple of days.

Markets have been pummelled this year as soaring prices – caused by the Ukraine war, supply chain snags and China’s lockdowns among other things – forced central banks to hike interest rates and warn of more to come.

Private cars will be allowed to take to the road again in Shanghai – except for controlled areas – but will still not be allowed to leave or enter the city.

Jeffrey Halley, an economist for Foreign exchange company OANDA, warned the changes would be gradual with traders acutely aware another Covid-19 flare-up could see the reimposition of tightened restrictions.

“The devil is in the detail of course, and workers in both cities still face challenges either going to work, or even being allowed to leave the house,” he said.

“Such minutiae are usually ignored by markets when it doesn’t suit the preferred narrative, and so it is today. Asia is pricing in peak virus in China and a recovery in growth.”

Public transport in Shanghai will also “resume basic operation” from Wednesday, authorities said, adding that taxis would be able to operate normally.

Private cars will be allowed to take to the road again in Shanghai – except for controlled areas – but will still not be allowed to leave or enter the city.

Shops remain closed, as well as most schools.

The city has been gradually easing restrictions over recent weeks, including allowing more residents out for a few hours at a time.

But some have complained of discrepancies between official announcements and relaxed rules being enforced on the ground.

The city reported 66 infections on Monday, while Beijing reported 12.

– With AFP