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China's commercial capital of Shanghai reported no new COVID-19 infections outside quarantine areas in two districts on Wednesday, fanning hopes that the tide is turning in its pandemic battle, as some factories began to return to work.

State media trumpeted the resumption of production by electric car company Tesla Inc (TSLA.O) at its Shanghai plant on Tuesday, after a halt of more than three weeks. read more

The U.S. carmaker was on a list of 666 firms the Chinese government said last week would get priority to reopen, or keep operations running, in Shanghai.

"The city's epidemic situation in recent days has shown a downward trend," city health official Wu Qianyu told a daily news conference on Wednesday. "Community spread has been effectively curbed."

Stringent lockdown measures after the outbreak began in early March left the city's 25 million people struggling with the loss of income, irregular food supplies, family separations and poor conditions in quarantine.

While 16.3 million people are still barred from leaving flats or housing compounds, Wu added, 7.85 million can return to factories or walk outside, a rise of 2 million from last week.

But some of those subject to looser curbs say they are still unable to secure the permission they need from neighbourhood officials to go out.

Authorities ramped up daily testing of residents this week, as well as transfers of positive cases and their close contacts to quarantine centres outside Shanghai.

Social media users have recounted stories of busloads of residents taken from home and sent into quarantine, even babies and the elderly.

Shanghai reported 16,407 new local asymptomatic coronavirus cases for Tuesday, down from 17,332 the previous day. Symptomatic cases fell to 2,494, from 3,084.

City authorities reported the deaths of seven people infected with COVID-19 on Tuesday. The toll stands at 17 since the latest outbreak began, all in the past three days.

Many residents have said, however, that a family member had died after catching COVID-19 since early March, but cases had not been included in official statistics, raising doubts over their accuracy.

The Shanghai government did not immediately respond to questions regarding the death toll.

Sources told Reuters that Shanghai aims to stop the spread of COVID-19 outside quarantined areas by Wednesday.

Tuesday's 390 new cases outside quarantine areas were down from 550 on Monday. Two of Shanghai's 16 districts, Jinshan and Chongming, reported no new cases outside quarantined areas, while seven had numbers in the single digits.

Other cities under lockdown began easing curbs after having halted transmission outside quarantine areas.

A key priority once people in Shanghai are able to resume going outdoors is to boost lagging vaccination rates among the elderly, health officials said. Just 62% of those older than 60 have been fully vaccinated, with 38% receiving a booster dose.

STUTTERING RESTART

China's strict control measures have hurt the world's second largest economy and global supply chains. While some firms resume factory operations, analysts do not expect production to see a straight-line recovery.

Most workers will have to live on site and factories must tackle disruptions in supply lines and access to markets, with supply chains snarled by closures in other cities and problems at ports and trucking operations.

A logistical "nightmare" faced many firms allowed to resume production, warned an official of the European Union Chamber of Commerce in China.

In a statement, vice president Bettina Schoen-Behanzin said the numbers of available trucks were down between 40% and 50%, with fewer than 30% of employees able to return to work.

"There’s a huge gap between policy and the reality of implementation," she added.

In the neighbouring city of Kunshan, home to many suppliers to the likes of Apple (AAPL.O), Taiwan firms making chip and electronic components reported a mixed picture on resuming work. read more

Chip substrate and printed circuit board maker Unimicron Technology Corp (3037.TW) said it would resume gradually, while Asia Electronic Material Co Ltd (4939.TWO), which makes parts for laptops, mobile phones and digital cameras, said its plant would stay closed. (Reuters)