Millions of people in Shanghai queued for a third day of mass COVID-19 testing on Thursday as authorities in several Chinese cities scrambled to stamp out new outbreaks that have rekindled worries about growth in the world's second-largest economy.

Unless local officials succeed in preventing the virus from spreading, they could be compelled to invoke prolonged, major restrictions on residents' movement, under China's "dynamic zero COVID" strategy.

Having just emerged from a painful two-month lockdown, Shanghai was again on high alert as it raced to isolate infections linked to karaoke services that had been taking place illegally.

Urging karaoke joints to abide by COVID rules and make sure customers had undergone tests, Shanghai resident Qiu Shijia had a message for their owners: "Don't push your luck."

Qiu was among a number residents Reuters spoke with in China's most populous city that were wary of a return to restrictions that had caused mental stress, and financial hardship for many people, and disrupted global supply chains and overseas trade.

The latest outbreaks in China have weighed on global asset prices this week.

"A resurgence of Omicron is not an issue in most other countries, but it remains a predominant issue for the Chinese economy," Nomura analysts wrote in a note, referring to the highly transmissible COVID variant.

As China is "by far the largest manufacturing centre in the world, any new waves of Omicron are likely to have a non-negligible impact", they added.

Residents in many of Shanghai's 16 districts were ordered to take two compulsory COVID-tests between Tuesday and Thursday.

They frequently take self-administered tests in order to enter shopping malls or travel on public transport, and they also have to take part in city-wide testing every weekend till end-July.

Shanghai reported 54 new locally transmitted COVID cases for Wednesday, versus 24 the previous day. Only two of those 54 cases were found in the community, with the rest in quarantine.

Another 50 compounds and venues were locked down on Thursday in the commercial hub, taking the total to 81.

PLAYING WHACK-A-MOLE WITH OUTBREAKS

Overall, mainland China reported 338 new local COVID cases for Wednesday, down from 353, with no new deaths, numbers which most countries would now consider insignificant.

Most cases, 167 of them, were in the eastern Anhui province where more than 1 million people in small towns are locked down.

In the capital Beijing, four new infections were reported, down from six the previous day.

From July 11, most people entering crowded venues, such as libraries, cinemas and gyms, will have to have been vaccinated.

After finding one COVID case involving someone who had arrived from Shanghai, the town of Xinjiang in the northern Shanxi province tested almost its entire 280,000 population, suspended taxis, ride hailing and bus services, and closed various entertainment venues.

In a different province, Shaanxi, which reported 4 new cases, the cultural and tourism authority requested travel agencies to cancel group tours in its capital Xian, famed for its Terracota Army.

The eastern Jiangsu province, which has cancelled a major sporting event scheduled for November, reported 61 infections.

China has said its uncompromising COVID policy, as opposed to a global trend of co-existing with the virus, was saving lives and the "temporary" economic costs were worth bearing.

Justifying the strategy, officials have contrasted the millions of COVID-linked deaths around the world, compared with China's reported the death toll of 5,226.

Analysts warn, however, that some costs may become permanent if China's debt burden increases and if curbs lead to investors and talent reconsidering their presence in the country.

China is planning to set up a 500 billion yuan ($75 billion)state infrastructure fund to revive the economy, two people with knowledge of the matter have told Reuters.

($1 = 6.7000 Chinese yuan)