What the protests in China can mean for the economy

Nueva York (CNN Business) — Protests against China’s protracted and restrictive Covid-19 rules spread across the country over the weekend. The demonstrations against Chinese President Xi Jinping and his costly “zero covid-19” policy are an extremely rare case of widespread civil disobedience.

While the protests represent an unprecedented challenge for Xi, they also have market and economic implications. Oil plunged to 2022 lows on Monday, as shares of companies that rely on China for their production began to feel the pressure. Apple fell 2.6% after reports that unrest at one of its factories could result in 6 million fewer iPhone Pro devices this year.

What is happening?

China’s controversial “zero covid-19” policy has affected daily life and hit the economy.

When outbreaks are severe enough, entire cities go into lockdown: Shanghai was under lockdown for about two months this spring and Chengdu, a city of 21 million, was locked down in the fall.

Earlier this month, Beijing eased some of the Covid-19-related restrictions, raising hopes that the economy could soon fully reopen, but local governments tightened controls again amid rising cases. The policy doesn’t appear to be working as infections hit all-time highs, but China’s low vaccination rate, relatively ineffective vaccines and an aging population mean the alternative could be very deadly.

The growing political tension has also been difficult to interpret. At first, the protests seemed focused on Covid-19 restrictions, but now they seem to carry broader demands for political reform: the blank sheets of paper held by protesters in Shanghai, the country’s financial hub, have already become iconic symbols of defiance against a government that limits free speech.

Economic impact

People in lockdown say they are having a hard time getting food and other basics. Economic growth has plummeted and unemployment has risen as a result of prolonged lockdowns.

The policy has also led to major restrictions on global production that are fueling inflation. Global supply chain pressures rose moderately in October, after five consecutive months of contraction, largely due to increased lead times in Asia, according to the Bank’s Global Supply Chain Pressure Index. New York Federal Reserve.

However, commodities fell on Monday on concerns over China. Oil prices plunged sharply, amid investor concerns that rising Covid-19 cases and protests in China could dampen demand from one of the world’s biggest oil consumers.

What can you expect?

Chinese government officials find themselves in a strange situation. They don’t want to end their “zero covid-19” policy, but they also want to make sure that political unrest doesn’t grow. Companies doing business in China are on the lookout for any clues about what the future may hold. They are also considering moving production out of the country for the long term: Apple has already moved some of its manufacturing to India.

Goldman Sachs, in a research report published late on Sunday, anticipated that the protests could lead China to scrap its zero-COVID-19 policy sooner than expected, with “some possibility of a disorderly forced exit.”

But the next few days could be crucial. If protests break out again, the Chinese government will likely be forced to react in some way. This Tuesday he announced an “action plan” to increase vaccination rates among the elderly. But “with the rapid spread of new Covid cases, it is difficult to foresee a broad lifting of restrictions that will boost the country’s economic outlook for the coming year significantly,” said Christopher Smart, Baring’s chief global strategist. “In any case, the continued policy uncertainty around the pandemic will put more pressure on global supply chains and keep prices higher than they would otherwise be.”