Swelling protests against China’s virus-induced curbs may end up supporting asset prices by encouraging President Xi Jinping to accelerate the nation’s exit from Covid Zero, according to some market watchers.

“I don’t expect Xi to publicly admit error or show weakness, but this wave of protests could cause the leadership to decide privately that the exit needs to proceed more quickly than previously planned,” said Gabriel Wildau, managing director at advisory firm Teneo Holdings LLC in New York.

Most risk assets slid in early Asian trade Monday on concern the unrest in China, coupled with surging daily infections, may convince the authorities to introduce further Covid restrictions. At the same time, the country’s focus after last month’s Communist Party congress has been on supporting the economy on a wide array of issues from reopening and the property crisis to relations with the US.

 

Eoin Treacy's view

There are two big questions at the heart of the Chinese protests against COVID-zero. The first is how long they will be tolerated for before remedial action is taken. The second is how swiftly the COVID-zero mechanism will be dismantled.

A learned subscriber summarized the issue succinctly

On Omicron in China. One aspect of the epidemiology of the virus is well known. When significant populations take to the streets in stressful circumstances, the daily case numbers accelerate dramatically to the upside. Sometime soon the communist Party has an important decision to make . In China ,if only one million people take to the streets ,they have a problem. One the other hand if 500 million take to the streets in protest, the communist Party has a problem

Communist Party rule relies on a submissive population. That’s why even a hint of dissent has been snuffed out so aggressively over the last decade. The shuttered of China’s version of iFunny a decade ago and the mass detention and sterilization of the non-Han population of Xinjiang are all part of the same program.

To give in to protests quickly would be viewed as a major sign of weakness within the ranks of the Party and would lead to questioning as to what can next be challenged. Nevertheless, the government cannot continue its mass testing program. Having a probe stuffed up your nose several times a day is not something anyone is going to tolerate indefinitely.

One way or another, the mass testing regime is over. New omicron variants are going to spread through the population much quicker as a result of the protests. Chinese people will come to the same conclusion as everyone else. The virus poses very little threat to youngish and healthy people.

China is likely to abandon their restrictions the same way as most other countries…silently. However, the protests will be put down first and that is not going to be pretty. The oil market continues to extend the decline below $90 and a clear upward dynamic will be required to check the slide.

Copper is also susceptible to further weakness as doubts about China’s economic outlook remain.

If one is to take a six-month view. There is clear potential that the almost $1 trillion in supports for the property sector announced last week will have a positive effect. That of course assumes the protests do not morph into wider public protests that eventually topple the one-party administration. This is the biggest understated risk of authoritarianism, eventually people are just so sick of it, they will risk everything for change.