WASHINGTON Over the past few days, there have been protests against the strict new crown blockade in many parts of China. Economists say persistent uncertainty over official Chinese policy on the new crown is putting more pressure on the economy.
Protests erupted in several major Chinese cities over the weekend, from the capital Beijing to the financial center Shanghai, where residents gathered to mourn the victims of the fires in Xinjiang, oppose the zero-coronavirus policy and call for democracy and freedom in rare protests The activity continued until the early hours of Monday morning.
Earlier this month, China's official "Twenty Points" had fueled hopes that China would relax its COVID-19 eradication policy. However, in the past week, the number of new crown cases has surged, and various places have gradually resumed strict blockade policies, which has caused dissatisfaction among the masses, and investors' concerns about China's economic recovery have resurfaced.
Martin Petch, a vice president at Moody's Investors Service, doesn't expect the protests to turn into serious political violence, but he noted that if the protests persist, they could trigger more forceful measures from authorities. Response will become a negative factor affecting the economy.
"While this is not our base case assumption, it would lead to increased uncertainty about the level of political risk in China, which would in turn hurt confidence and thus consumption in an already weak economy," Page told VOA.
Shocking global financial markets
The protests in China immediately rattled global financial markets, with markets pricing in political risk, investor risk aversion and China-linked assets under pressure.
Mainland China's Shanghai Stock Exchange Composite Index fell as much as 2.2% after the market opened on Monday, with shares in most sectors including financials, real estate and energy slipping.
Hong Kong's Hang Seng Index had fallen as much as 4.2% at the open, while the Hang Seng China Enterprises Index, which tracks the performance of mainland Chinese companies listed in Hong Kong, closed down 1.7%.
The yuan tumbled against the dollar on Monday, with the onshore yuan falling as much as 1.1% at one point to 7.2435 per dollar, its weakest level since Nov. 10. The People's Bank of China's decision on Friday to lower the required reserve ratio for banks to boost the economy also added to downward pressure on the Chinese currency.
Commodities, meanwhile, also slumped on concerns about the situation in China. Oil prices fell sharply on Monday as investors worried that surging coronavirus cases and protests would dent demand in China, the world's top oil consumer.
Alicia Garcia Herrero, chief economist for Asia Pacific at Natixis, said uncertainty surrounding China's new crown policy is having a negative impact on global markets.
Herrero told VOA: “There is no doubt that the expansion of such protests and/or harsh government responses will further hit foreign direct investment that has been hit by the new crown zero policy.”
Mark Haefele, chief investment officer at Swiss lender UBS, agrees that investor sentiment has taken a toll. He also noted in a note on Monday that rising infections in China could exacerbate disruptions to global supply chains, causing domestic headwinds to spill over to global markets.
According to the Global Supply Chain Stress Index from the Federal Reserve Bank of New York, after five consecutive months of easing, global supply chain stress rebounded slightly in October, mainly due to increased delivery times in Asia.
In recent days, due to dissatisfaction with the new crown control measures, in Zhengzhou, China, workers have fled and protested at the Foxconn factory, the world's largest Apple mobile phone manufacturing base. The turmoil could cut production of Apple's iPhone Pro by nearly 6 million units this year, Bloomberg reported on Monday, citing people familiar with the matter.
Growing social discontent :
The outside world is closely watching whether the public protests will push the Chinese government in the direction of reopening. China's economic growth is already slumping and unemployment is rising due to the prolonged lockdown, while growing social discontent further heightens the risk of Beijing's policy experimentation.
Some experts believe that the demonstrations mean that the current new crown policy is no longer politically sustainable, which may serve as a catalyst for the government to formulate a clearer opening plan.
Allan von Mehren, China economist at Danske Bank, told VOA: "The social costs of this policy are increasing and have reached a limit that cannot be continued, Otherwise people would be hurt more, so in that sense, I think these protests are influencing China’s decision to say okay, now we need to change our approach, we need to start moving away from this strict COVID-19 policy.”
"It should be positive if it (the protests) helps speed up reopening, but there are signs that change is not coming quickly. There may be public health reasons behind it," Herrero said.
Chinese officials have not clearly stated that they will loosen the new crown prevention and control measures. When asked whether "protests" in certain places would cause the government to reconsider the epidemic response policy, Mi Feng, spokesman of the National Health and Medical Commission, said at a press conference on Tuesday: "For the prevention and control measures, we have been Research is constantly being adjusted to protect the interests of the people to the greatest extent and minimize the impact of the epidemic on economic and social development."
However, some analysts believe that concrete signs of China's withdrawal from the new crown zero policy are emerging. Chinese officials on Tuesday issued a notice aimed at strengthening the vaccination of the elderly in China against the new crown. For a long time, low vaccine coverage for vulnerable groups and insufficient medical resources have been the main factors restricting China from reopening without high death rates.
The financial market was also boosted by the notice from the Health Commission. On Tuesday, Hong Kong's Hang Seng Index closed up 5.24%, the Hang Seng China Enterprises Index rose 6.20%; the Shanghai Stock Exchange Composite Index climbed 2.31%, and the Shenzhen Component Index rose 2.40%.
Investment bank Goldman Sachs said China's central government may soon have to choose between more lockdowns and liberalization, as local governments struggle to balance the spread of the epidemic with implementing the "Twenty Points" to optimize prevention and control. The bank sees a 30% chance of China reopening by the second quarter of 2023.
Shine Hui, Goldman's chief China economist, noted in an analysis published Sunday that the bank's forecasts for China's reopening now include "the possibility of a forced and disorderly exit."
China's "disorderly exit" from epidemic control may mean that Chinese officials will scale back prevention and control measures before the country is ready to deal with new cases. A surge in cases would disrupt manufacturing and services, putting pressure on public health services. Residential consumption will remain suppressed in the short term due to fears of new crown infections.
Goldman Sachs expects this disruption to pose a downside risk to China's fourth-quarter growth. The bank expects China's gross domestic product (GDP) to grow 3% this year, below the official annual growth target of around 5.5%.
There are also some analysts who believe that it is unlikely that the Chinese leadership will change direction and end the new crown zero policy because of the protests, because this will set a precedent and cause the medical system to be overwhelmed.
"They don't have good options in the short term to address the protesters' demands: Ease of strict COVID-19 controls is almost impossible," Mark Williams, chief Asia economist at Capital Economics, wrote in an analysis on Monday. It would certainly lead to a surge in the death toll that would undermine the leadership's narrative of an effective response to the pandemic."
Research from Capital Economics shows that economic activity in China is as sluggish as it was when Shanghai was locked down earlier this year, and whether the authorities decide to tighten or relax containment measures next, the Chinese economy faces a dire outlook.
Williams wrote: "If the leadership decides to begin China's transition to co-exist with the new crown, this will require the imposition of more movement restrictions in the short term than currently in order to flatten the curve of opening up. If the new crown zero requirement is adhered to, Strict local lockdowns will be required in areas of the outbreak that currently generate nearly two-thirds of China's GDP."
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