What: The Shanghai government’s announcement Tuesday of a policy that requires new arrivals in the city to stay away from public places for five days is likely to put even more pressure on the local luxury retail market.

Why is it important: According to a report published by Barclays, the latest round of restrictions in one of China’s most important luxury hubs will bring an additional headwind to China luxury sales in the fourth quarter.

Starting Thursday, people entering Shanghai will be barred from public venues, including restaurants, pubs, shopping malls, department stores, supermarkets, indoor gyms and internet cafes for five days upon entry. They must take three nucleic acid tests three days in a row, the last test on their fifth day in the city, before being allowed to travel freely with a green code.

Shanghai’s announcement is particularly relevant for the luxury sector, as it effectively prevents non-local luxury consumers from making short to mid-length shopping trips into the city.

According to an earlier report published by Barclays in September, non-local clients can contribute up to 50% of sales to malls in major cities such as Shanghai and Beijing.

After the new rules were introduced in Shanghai, cities such as Shenzhen, Nanchang, Xi’an, Sanya, Zhengzhou and Harbin followed up with identical policies. Travel restrictions for new arrivals ranged from three to five days. Local governments also urged residents to cancel travel plans if possible.

China reported more than 29,700 new cases on Wednesday, topping a record high since the Shanghai outbreak in April. Shanghai reported nine confirmed COVID-19 cases and 58 asymptomatic cases on Wednesday.

According to a Goldman Sachs report published on Nov. 6, China is likely to exit its “zero-COVID-19” policy in the second quarter of 2023, after the second Congress of the Party next March, when President Xi Jinping will renew his presidency.

New Shanghai Covid-19 restrictions put pressure on luxury market