The economic consequences of China’s protests

“Share prices tumble on China anti-lockdown protests,” ran the early headlines. “Well, sort of,” said Nils Pratley in The Guardian. By the close of trading on Monday, even the main Chinese index was down only a smidgen more than 1%. And, despite being overpopulated with “China-sensitive” mining firms, the FTSE 100 fell by “a barely noticeable” 0.17%.

The lack of a serious reaction is odd, given that these protests were widely compared to those in 1989 – and particularly given that Beijing “has no good options” going forward. Sticking with its zero-Covid plan would require strict lockdowns in the areas which generate up to two-thirds of China’s GDP. And if those fail, there’s a risk of a national lockdown, “with an economic impact similar to that in early 2020”. Given what happened to supply chains then, the potential for a major global fallout is obvious.

The implications for multinationals with big manufacturing hubs in China, such as Apple and Tesla, are especially serious, said Bloomberg Businessweek. We’ve already seen workers riot at the iPhone-maker Foxconn. But companies with less heft may have even more trouble. The upshot, analysts advise, is that any Western company reliant on Chinese manufacturing should consider alternatives.

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The protests could reshape the flow of global manufacturing investment, said Nathaniel Taplin in The Wall Street Journal. A key factor that encourages manufacturers to choose China – over, say, India – is that “investment-hungry local governments” have often acted decisively “to defuse political problems” that could complicate business. The scale of these protests, over labour conditions and Covid policies, will undermine confidence in this arrangement.

Challenging economic backdrop

The economic backdrop could hardly be more challenging for China, said David Rennie in The Economist. GDP growth, which clocked up a roaring 8% during China’s 2020 export boom, may struggle to reach 3% this year; youth unemployment is “worryingly high”; and political and regulatory barriers are hampering the cross-border investments and ties that “fuel innovation”.

Meanwhile, a property crisis has hit local government revenues just as bills for Covid spending come due. “The situation in the country is plainly tense and finely balanced,” said Robert Armstrong in the FT. “Another medico-political disruption could arise at any time.”

Perhaps the best we can hope for is that public anger will force an easing, said The New York Times. As the economist George Magnus puts it: “If there’s a glimmer of light, it’s that once the winter infection surge is over, China will move to ZCiNO: zero-Covid in name only.”