The latest protests in China have been widespread and show a population tired of COVID Zero lockdowns.

In China’s authoritarian state such protests against Party policy are rare and carry strict penalties. So, these protests are a big challenge to President Xi. What will he do next? How will that impact markets?

President Xi has to accelerate Covid Zero

Some of the reasons for the recent COVID Zero protests have been blamed on the World Cup coverage. Images of supporters without masks, mingling freely are a stark contrast to the strict lockdowns across China. According to BBC’s Nick Robinson, there is evidence that China’s State Television, CCTV, is avoiding crowd close-ups in their coverage.

So, what can President XI do? The 3 possible options could be:

  1. Accelerate the withdrawal of the Zero Covid policy,
  2. Crack down hard on the protesters,
  3. Crack down on the ring leaders and speed up Zero Covid withdrawal.

All of these options will eventually lead to the end of the Covid Zero policy. Even if President Xi launches a strong resistance to the protests eventually COVID will fade. There seems little point in making a stand here for Xi which is perhaps why the protests have been allowed as citizens express their frustration. So, President Xi has to realistically take option 1 or 3 and most likely he will take option 3. That way the government keeps face, avoids a full-scale confrontation with its citizens and can try to bring the country back to normal. With China’s stocks so heavily sold off now is this a great time for long-term China longs?