Six districts comprising the majority of the city's population of almost 18 million announced that all residents would be tested twice for COVID-19 over the weekend as subway and bus services were suspended.

Employees should work from home, with the exception of those in self-contained "closed-loop" operations, essential supplies and public services.

In the southwestern metropolis of Chengdu, which put its 21 million people under lockdown on Thursday, factories including plants run by auto giants Toyota and Volkswagen kept production running under closed-loops.

Curbing movements of tens of millions of people intensifies the challenge for China to cushion the economic impact of a "dynamic-zero" COVID policy that has kept its borders mostly shut to international visitors and made it an outlier as other countries learn to live with the coronavirus.

China has given little indication of any plans to pull back on its stringent controls.

Economists at Nomura said in a Friday report that market expectations for easing once China's ruling Communist Party completes a once-in-five-years Congress in October are optimistic.

Nomura expects COVID curbs to remain at least until March, when the annual parliamentary session takes place.

Even then "we expect the economy and markets to experience a difficult period, as people will be either disappointed about no real opening or be overwhelmed by a surging COVID infection", the economists wrote.

The world's second-biggest economy slowed sharply in the second quarter due to widespread lockdowns, and a nascent third-quarter recovery appears in danger of stalling.

"We believe markets still underestimate the severity of this round of (COVID)," Nomura wrote.

China's blue-chip stocks sagged on Friday.

'CAN'T JUST GIVE UP'

In Shenzhen on Thursday, city officials sought to quell rumours that a full lockdown was imminent. In March, the city swiftly locked down for a week to fight community infections.

They said people could leave and return to their homes with proof of a test result less than 24 hours old.

"We need to get the virus under control, we can't just give up like some countries," said a woman surnamed Tang volunteering to help food deliveries at a locked-down housing compound in Futian, Shenzhen's hardest-hit district.

"But I don't know when it will end, it's really hurting businesses."

On Friday, officials reported 87 new locally transmitted COVID infections in Shenzhen for Thursday, up from 62 a day earlier. Eight of the new cases were outside quarantine areas.

CLOSED LOOPS

In Chengdu, uncertainty remained over whether the lockdown would be lifted after daily mass testing ends on Sunday. The city reported 150 new local cases for Thursday, compared with 157 a day earlier.

Non-essential employees in Chengdu were told to work from home, while manufacturers capable of managing on closed campuses were exempted from work-from-home requirements.

Toyota Motor's (7203.T) Chengdu plant, which has an annual production capacity of 105,000 vehicles, was "operating normally" and inside a closed loop at the request of the Sichuan province government, a company official told Reuters.

A Volkswagen plant in Chengdu that makes the Sagitar and Jetta models has been operating in a closed loop since Thursday, a VW China representative told Reuters. Foxconn was continuing to operate a plant that makes Apple iPads in the city, Bloomberg reported.

However, Sweden's Volvo Cars (VOLCARb.ST), majority owned by China's Zhejiang Geely Holding Group, has shut its Chengdu plant, a company spokesperson said on Thursday.