In April-May this year, Shanghai’s economy, in a citywide lockdown due to the resurgence of COVID-19, was hit hard.

The movement of people and goods was basically at a standstill, hitting economic activity and income generation.

Service industries including catering, entertainment and tourism have been hardest hit by the loss of mobility, with target consumers under lockdown and logistics at a standstill.

The city then carried out a special pass management policy allowing the resumption of part of the logistics, which partly alleviated the difficulties for the economy.

Compared to the service sector, manufacturing industries were less affected, with some buffer stock comprising raw materials and intermediate goods.

But overall, they still faced issues related to poor logistics. What they produced could not be shipped, while intermediate goods and necessary parts could not be shipped.

Due to these factors, negative economic growth was inevitable in the short term. According to the National Bureau of Statistics, Shanghai’s economic output fell 13.7 percent from a year earlier in the second quarter and lost 5.7 percent in the first six months.

This tells us that the most important thing for a city’s economy is to ensure the mobility and fluidity of people, capital, goods and information, like a human circulatory system.

We are in a market economy, an open economy, which means that all policies affecting mobility and unexpected incidents such as pandemics will have a significant impact on the economy in the short term.

Unlike other international metropolises such as New York and Hong Kong, Shanghai sees a significant share of GDP (about a quarter) contributed by manufacturing industries.

The presence of the manufacturing sector has cushioned the impact of the pandemic outbreak on Shanghai’s economy to some extent. The situation would be much more serious if the city had bet everything on the service sector.

Manufacturing, compared to services, is not as fragile and many industries can operate in a closed loop. Automation has also enabled many industries to replace human labor with robots, which is undoubtedly a big trend in the future.

For the tertiary sector, to recover as quickly as possible, the most important thing is to improve capacities for pandemic surveillance, epidemiological investigations and nucleic acid tests.

Shanghai, with relatively good local financial conditions and strong medical resources, can also expect an accelerated economic recovery.

Another concern was to keep essential city functions on track. Shanghai’s central functions of finance, trade and maritime transport have seen highly modernized technical means, with a considerable volume of transactions carried out online.

This means they can continue to operate with only a small number of on-site staff in the event of a pandemic or lockdown.

It also reminds us that Shanghai, as a financial center, must have a fully functional and efficient disaster recovery system covering various financial operations, including capital markets, commodity futures and funds and securities.

Many institutions may have them in place but have not had the opportunity to test them before. This epidemic has just offered such an opportunity.

An executive of the Shanghai Gold Exchange, for example, mentioned that in addition to the exchange’s delivery center in Shanghai, it also has a backup trading center in Shenzhen, to deal with emergencies in Shanghai.

For the second half of the year, the biggest enemy of economic recovery and stability is uncertainty.

Shanghai’s top priority should be to create a science-based, transparent and predictable policy environment, which is important for households, investors, entrepreneurs and businesses.

I hope to see Shanghai authorities sort out the policy environment after the pandemic and eliminate restrictive practices and redundant measures as soon as possible, so that policies can be clearer and more transparent.

My advice is that the city government should attach importance to this issue and clarify current policies at a glance. They can do this through a fixed policy window or a hotline, to reduce the uncertainty of living, investing, buying property and doing business in Shanghai.

Shanghai, with China’s most developed economy, is expected to lead the country in innovation across the board.

It should also take the initiative to leverage the blow of the pandemic to influence the development mode of the local economy, namely to significantly reduce state intervention and follow market rules more closely.

Clearly, the city should strive to allow and encourage the independent choice of market players. The task of government, on the other hand, should be to improve the policy environment, eliminate all kinds of uncertainties and provide institutional support for fair market access and fair competition, effectively protecting the rights and the interests of market players.

(The article is compiled by Shanghai Daily reporter Huang Yixuan based on Professor Zhang Jun’s interview with Jiefang Daily.)