Written by Patricia Cohen
The swelling protests against severe pandemic restrictions in China — the world’s second-largest economy — are injecting a new element of uncertainty and instability into the global economy when nations are already struggling to manage the fallout from a war in Ukraine, an energy crisis and painful inflation.
For years, China has served as the world’s factory and a vital engine of global growth, and turmoil there cannot help but ripple elsewhere. Analysts warn that more unrest could further slow the production and distribution of integrated circuits, machine parts, household appliances and more. It may also encourage companies in the United States and Europe to disengage from China and more quickly diversify their supply chains.
Millions of China’s citizens have chafed under a tight lockdown for months as the Communist Party seeks to overcome the spread of the Covid-19 virus, three years after its emergence. Anger turned to widespread protest after an apartment fire last week killed 10 people and comments on social media questioned whether the lockdown had prevented their escape.
It is unclear whether the demonstrations flaring across the country will be quickly snuffed out or erupt into broader resistance to the iron rule of its top leader, Xi Jinping, but the most significant economic damage stems from the lockdown.
“The biggest economic hit is coming from the zero-Covid policies,” said Carl Weinberg, chief economist at High Frequency Economics, a research firm. “I don’t see the protests themselves being a game changer.”
“The world will still turn to China for what it makes best and cheapest,” he added.
Asked how the Biden administration assessed the economic fallout from the latest unrest, John Kirby, coordinator for strategic communications at the National Security Council, said Monday, “We don’t see any particular impact right now to the supply chain.”
Concerns about the economic impact of the spreading unrest in China, nonetheless, appeared to be partly responsible for a decline in world markets. The S&P 500 index closed 1.5% lower, while the dollar, often a haven in turbulent times, moved higher. Oil prices began the day with a sharp drop before rebounding.
The sheer magnitude of China’s economy and resources makes it a critical player in world commerce. “It’s extremely central to the global economy,” said Kerry Brown, an associate fellow in the Asia-Pacific program at Chatham House, an international affairs institute in London.