How protests in China are impacting the world economy

Demonstrations are an extremely rare case of widespread civil disobedience in China.

Protests against China’s extended and restrictive Covid measures spread across the country this past weekend. The demonstrations against Chinese President Xi Jinping, and against the costly zero-covid policy, are an extremely rare case of widespread civil disobedience.

While the protests pose an unprecedented challenge for Xi, they also have market and economic implications. Oil plummeted to 2022 lows on Nov. 28, and stocks in companies that depend on Chinese production took a hit. Apple shares fell 2.6% after reports that unrest at one of its factories could result in six million fewer iPhone Pros being produced this year.

What’s happening: China’s controversial Zero-Covid policy has affected daily life and weighed heavily on the economy. When outbreaks get worse, entire cities are shut down. Shanghai was in lockdown for about two months this spring, and Chengdu, a city of 21 million people, was locked down in the autumn.

Earlier this month, Beijing eased some Covid-related restrictions, raising some hope that the economy could reopen fully soon, but local governments have tightened controls again as cases have risen. The policy doesn’t seem to be working as the number of cases has reached a record high, but China’s low vaccination rate, relatively ineffective vaccines and an aging population mean the alternative could be very lethal.

The rising political tension has also been difficult to interpret. At first, the protests appeared to be centered on Covid-related restrictions, but now appear to carry broader demands for political reform. The blank sheets of paper held up by protesters in Shanghai, the country’s financial hub, have already become iconic symbols of provocation against a government that limits freedom of expression.

Economic impact: people in confinement say they have difficulties finding food and meeting basic needs. Economic growth has slowed and unemployment has risen as a result of lockdowns.

The policy has also led to major restrictions on global production that bolster inflation. Global supply chain pressures increased moderately in October after five consecutive months of easing, largely due to longer delivery times for Asian goods, according to the Federal Reserve Bank of New York’s Global Supply Chain Pressure Index. York.

Still, commodities skidded due to China concerns on Monday the 28th. Oil prices fell sharply, with investors worried that the rise in covid cases and protests in China could subside demand from one of the biggest oil consumers in the world.

What follows: Chinese state authorities are in a strange situation. They don’t want to end covid-related politics, but at the same time they want to make sure political unrest doesn’t escalate. 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 in the longer term. Apple has already moved some of its production to India.

Goldman Sachs, in an analysis report published on Sunday night, November 27, predicted that the protests could lead China to abandon the Zero-Covid policy before the expected date, with “some hypotheses of a forced and disorderly exit ”.

But the next few days could be crucial. If the protests intensify again, the Chinese government will probably be forced to react in some way. On Tuesday, it announced an “action plan” to boost vaccination among the elderly. But “with a rapid spread of new cases of covid, it is difficult to imagine a comprehensive lifting of restrictions that would give a significant boost to the country’s economic prospects for the coming year”, said Christopher Smart, head of global strategy at Baring. “Be that as it may, continued pandemic policy uncertainty will lead to further pressures on global supply chains and keep prices higher than they would otherwise be.”

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