China tightens COVID restrictions as protests escalate

Yahoo Finance’s Anjalee Khemlani discusses the abrupt protests happening in China as COVID-19 continues to spread.

Video transcript

[AUDIO LOGO]

ANJALEE KHEMLANI: That's right, Brian. As Julie mentioned, of course, we saw these protests erupt over the weekend in cities like Beijing, Shanghai, and Wuhan, the epicenter of the original outbreak of the pandemic, all because of the stringent restrictions that China is putting back in place after recent case spikes across the country, especially affecting these larger cities.

And that's been a concern as we've heard rumblings over the past few months, first with the lockdown in April and May in Shanghai, as well as subsequent months the restriction of access to food, access to medical care, even in one instance lack of availability of fire transportation to reach on time to a fire.

So all of these things have been building up over time. We've seen how that zero-COVID policy has really been putting pressure on Chinese citizens and the concern that they've had about this ongoing since the start of the pandemic, that zero tolerance.

And of course, we've heard about over the past several weeks the pressure that President Xi is facing to the point that Julie made about comments about democracy, about no life-term presidents, all that coming into play in what is essentially a public health crisis in China right now, with the government choosing a very stringent practice in order to help keep cases down, even though they're finding quite a transmissible subvariant of Omicron right now.

- Anjalee, while we have you, one of the numbers that's coming to light as well is the number of people that would need intensive care treatment if some of the zero-COVID policies are dropped-- 5.8 million people. What would the impact to the health care system look like in China if we do see the removal of the policies as well?

ANJALEE KHEMLANI: Absolutely. That's the concern, of course, overwhelming of hospitals. That's something we understand and have dealt with over here in the US, the need to build out more capacity quarantine centers and the like. China was already pulling back on that, if you recall, easing international travel and the isolation time, not needing to use these centers as much or for as lengthy a period of time.

But now in recent weeks, we've seen the need for an increased use and definitely some commentary about the increased capacity that's required to handle the spike in cases, so putting pressure on an already pretty pressured system over the last three years. We know all about that here now, as we have this triple-demic sort of hitting us here in the US.

JULIE HYMAN: Thanks so much, Anjalee. Appreciate it. So now the question is, you guys, here in Chi-- when we talk about the authorities in China, will they change their policies? There were some glimmers of it. Goldman Sachs out in a new note saying, the chances that China's going to reopen before the second quarter of 2023 are 30%. I think that's actually unchanged from what Goldman thought before. But what it's saying now is that it could be a disorderly-- a forced and disorderly exit.

There are so many questions here. Because China has put so much-- the Chinese authorities have put so much stock in this zero-COVID policy, there's a lot of question about whether they want the appearance that their hand is being forced by the protesters. And that really sets this up for a volatile situation, which is obviously what we're seeing markets react to as well.

BRIAN SOZZI: And that's what markets were bid-- or they have been bid up over the past month on this notion that China would be reopening. You mentioned it this morning, Julie. You've seen a lot of Wall Street notes over the past month come out bullish that almost 2023 will be just a different China. And that is now a thesis that is now coming under attack.

And it also dovetails with another note from Goldman Sachs saying they remain relatively defensive on stocks for the next three months. They recommend investors stay overweight cash. That is a big call by Goldman.

- One of the other notes within here, or at least portions of this note from Goldman, they're saying that within that 30% profitability that you mentioned, that probability of reopening before Q2 next year, it also dovetails into where this also impacts some of the GDP forecasts for China as well, citing high risk districts accounting for 65% of the national GDP within China.

And then this also comes at a time where we had already seen some economists start to pare back with their expectations for growth would be in 2022, and even into 2023 as well. In 2022, they're expecting China's growth to slow to 3.2% here. And so now you've got, of course, the policies that have already been more strict and enacted now at a time of the year where we typically do see more of these spikes in cases and where that may protrude even more so into 2023 could have a larger impact into 2023 as GDP forecast for China.

JULIE HYMAN: And it also has to do with supply chain. And what were-- you know, we had this-- these glimmers of hope about supply chain, that things were finally starting to normalize, and now you have these potential disruptions. And of course, Apple is one of the companies that is most at the center of this because many of the protests in China began at Foxconn plants where Apple products are being manufactured.

There's a Bloomberg story out this morning that there could be a shortfall of up to 6 million iPhone Pro units this year. They're citing people familiar with the situation. They could then potentially make those up in early 2023, that production. But even so, we're going into the holidays. If they don't have as many phones as people want, that could potentially be an issue.

BRIAN SOZZI: I'd say that the concern, you could feel it on our ticker pages. Top ticker on our site, Apple. And our friend Dan Ives, his note, really good note by him making the rounds this morning, saying he's seeing a major shortage in iPhone Pros this holiday season. Also thinks-- he's at almost 10%. He thinks there could be a 10% shortage of iPhones.

So the Bloomberg story says 6 million. Dan Ives at about 10% just shortage. I mean, these are big numbers for a company like that.