Global markets jittered as Chinese citizens took to the streets to demonstrate against the government’s strict “zero-COVID” strategy over the weekend. The protests’ immediate impact on global markets is raising questions about the way forward for the world’s second-biggest economy.
On Monday, the Dow fell more than 500 points after declines in the European and Asian indexes, along with a plunge in oil prices as U.S. oil fell to its lowest price in nearly a year. Cryptocurrencies also saw a slump as one economist told Bloomberg that zero-COVID policies posed a challenge to stabilizing domestic demand for crypto assets.
Most markets had regained ground by Tuesday after Chinese health authorities reported an uptick in senior vaccination rates. The pan-European Stoxx 600 was flat, while in the U.S., the S&P 500 hovered around the flatline and the Dow lost 41 points. Oil steadied after OPEC+ kept its output unchanged, with Brent crude futures up 48 cents at $83.67 a barrel.
China’s economy is already inflexible under the central control of the Communist Party, led by President Xi Jinping, but experts fear that it will become more sluggish if widespread lockdowns continue to threaten the global supply chain and fuel civil unrest.
Shortly after Xi began his third term in October, the government again buckled down on its zero-COVID policies, leading to an underwhelming stock market, a weakening renminbi and capital outflows—making it a difficult year for the country’s economic outlook and for China’s investors.
Most analysts suggest that the government will need to take a more pragmatic approach to fix its economy, including loosening its COVID-19 restrictions and vaccinating higher numbers of the elderly, which is considered vital to reopening the economy. According to the latest official statistics, 32% of China’s 267 million people over the age of 60 have still not received their third vaccine dose.
On Monday, Mi Feng, a spokesman from the National Health Commission, reaffirmed Beijing’s commitment to the zero-COVID measures. He added that complaints about the strict prevention and control measures fell under the purview of the local authorities, saying they must respond to and resolve “reasonable” COVID-19 requests from the public in a timely manner.
But rumors abound that authorities may ease restrictions with a zero-COVID exit plan, with the hope that an eventual reopening would lead to a rise in the Asian markets.
Michael Hirson of 22V Research told Yahoo! Finance that the possibility of reopening is increasing as the population and local governments clearly reach exhaustion from maintaining zero-COVID policies. However, he warned that “a chaotic pivot [in government policies] is likely to be highly disruptive to the economy–quite possibly worse than zero-COVID, at least in the near term.”