Does Chinese Pandemic Unrest Mean Big Problems Ahead? Maybe Not, Says Bespoke

Anxiety about protests in China, along with that old stalwart worry-maker, Federal Reserve tightening, pulled down stocks Monday, with the S&P 500 off 1.5%. Maybe excessive fretting over China is unwarranted, however.

Large demonstrations over the weekend in Chinese cities, protesting Beijing’s zero-COVID policies, stoked market fears that China faces more tough times ahead due to the pandemic. The virus’ caseload has grown lately despite the harsh lockdowns and other restrictions that have crimped the globe’s second largest economy’s economic growth.

But perhaps the public outcry and the conditions that provoked the demonstrations will not harm China in economic or investing terms, Bespoke Investment Group contends. “Pressure to end COVID-zero policies has certainly grown, but the protests in China are not a one-way train to major unrest or violent and persistent mass resistance” to the Chinese regime’s pandemic program, the firm argued in a research note.

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Thus far, massive police violence and arrests have not occurred during the demonstrations in Beijing, Shanghai and other cities, Bespoke noted. The official response to the public dissent, the firm reasons, is nothing like the massacre that squelched the 1989 protests in Beijing’s Tiananmen Square and resulted in an uncertain death toll reports place in a wide range from several hundred to several thousand. That crackdown remains a seminal event in global politics and resulted in a major setback for China’s acceptance in economic and financial circles worldwide.

The regime has shown restraint this time, Bespoke said. The research report finds that, “So far, protests have been allowed, while behind the scenes social media and other communications have been interfered with to slow the spread.” The note also said authorities have backed off mass arrests and other repressive tools available to them, such as stripping protesters of their incomes and assets, or full-scale censorship. There have been some reports of smaller-scale arrests and breakups of some protests.

What’s more, Bespoke said, this is not the first time in recent years Beijing has faced protests over its policies—and its reactions in these cases have been mostly hands-off. Last year, the research note said, demonstrations erupted over the government’s dealing with failing real estate companies. Homebuyers and investors, who saw the money they had put into property projects vanishing, rallied to object to officials’ seeming indifference to their plight, among other things.

In addition, Bespoke expects the fallout from the pandemic unrest and the economic problems inspiring it will not be too painful outside China. Iron ore and copper, two commodities affected by a slowing demand from a dialed-back Chinese economy, will only impact international suppliers “at the margins,” the firm declared. “Chinese consumers purchase little from the rest of the world, but supply much,” the research paper stated.

The ill effects are confined to specific companies, with Apple a conspicuous example, Bespoke wrote. The tech firm and its customers will feel the brunt from an output shortfall at the Chinese factories making iPhones, owing to pandemic-related worker absences.

Hence, Bespoke sees no damage to capital markets around the globe. In world markets ranging from stocks to interest rates, Bespoke said, “We would generally expect hits from domestic Chinese chaos to be relatively small and short-lived.”

Investors in Chinese stocks have not suffered much, relatively speaking, following the protests. On Monday, the Shanghai Composite lost just 2%, only slightly worse than the S&P 500’s same-day dip, and it immediately began making up those losses in Tuesday’s trading.