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Shanghai to accelerate new manufacturing projects and expansions to help China’s economic ‘dragon head’ catch up

The Shanghai government will speed up approvals for new manufacturing projects to support production, as the Chinese mall struggles to get economic activity back on track after a two-month lockdown in April and May.

The city, whose economy has shrunk by an unprecedented 5.7% in the first six months, must convince global investors of its resilience as it grapples with the aftermath of lost production, missed deadlines and supply chain disruptions during the period, said Quan Heng, Communist Party secretary and researcher at the Shanghai Academy of Social Sciences (SASS).

“Key industrial projects can effectively support economic production, [which is why] the municipal government is accelerating the pace of approvals,” Quan, who represents the think tank and economic policy adviser, said during a Thursday press briefing. “These measures are not only aimed at consolidating economic data, but also at stimulating technological innovations to pursue high-quality growth in the future.”

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The city of 25 million inhabitantsoften referred to as the “dragon’s head” of the Chinese economy, houses the Chinese operations of Tesla, General Engines, and millions of factories, as well as the main onshore financial center of the country. Growth risks missing the 5.5% target for 2022, he said, as the economy struggles against a backdrop power shortage and intermittent anti-Covid policies to return to normal.

Shanghai’s economy in the second quarter decreased by 13.7% compared to last year, the commercial activity having stopped city ​​lockdown from April 1 to June 1 to contain a spread of the coronavirus epidemic.

To make up for lost time, the local government is aggressively launching construction and expansion plans. That includes giving Tesla the green light to add an electric car assembly line to its first wholly foreign-owned factory, according to two Shanghai government officials.

Shanghai lockdown could cut China’s GDP by 3% in April

Work on the second line, which will strengthen from Tesla annual capacity of more than one million vehicles by adding 450,000 units, will start in the coming months near the existing Gigafactory in Lingang Free Trade Zone, the government sources said.

Tesla won’t be the only one to expand in Lingang. A total of 72 projects began laying the groundwork in the region last week, a clear sign that Shanghai officials were pinning their hopes on building infrastructure to get the local economy back on track.

Still, it would take time for additional capital investment to translate into a full economic recovery, said Shen Kaiyan, director of the SASS institute of economics.

Shoppers and pedestrians walk along Nanjing Road shopping street in Shanghai on Saturday, July 9, 2022. Photo: Bloomberg.

“After a great recession [over the past months], the local economy will come back at a gradual pace,” she said. “The bottom line is that Shanghai needs to prove its resilience, and global investors will come back when the economy rebounds here.”

Shanghai, whose gross domestic product exceeded 4.3 trillion yuan ($583 billion) for the first time last year to overtake Beijing, Shenzhen and Guangzhou, has yet to fully switch to the lifestyle of pre-lockdown with local government still imposing restrictions on mobility.

Residents wishing to use public transport or enter malls and hospitals must present a negative nucleic acid test taken within the last 72 hours, while all residents are required to take at least one test per week .

Most cinemas and KTV lounges in the city remain closed to prevent the spread of the highly transmissible Omicron variant.

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