Failure of China’s zero-COVID policy tops 2022 geopolitical risk list: Eurasia Group

Two years after the first occurrence of COVID-19 in China, the potential failure of the country’s “zero-COVID” policy poses the greatest global risk of 2022, threatening to exacerbate disruptions to the global supply chain and inflationary pressures, warned Eurasia Group, a political risk-consulting firm.

“For rich countries, the end of the pandemic will come soon as the virus will collide with highly vaccinated populations and treatments that prevent death. But most countries, and China in particular, will have a harder time getting there, ”Eurasia group chairman Ian Bremmer and company chairman Cliff Kupchan wrote in a report on Monday.

They predicted that China’s zero COVID policy, colliding with a much more transmissible omicron variant with vaccines that are only marginally effective, will fail to contain infections in 2022. This will lead to larger outbreaks and lockdowns. more severe “and greater economic disruption in a nation that has long been the world’s primary growth engine.

The zero-COVID policy has resulted in border restrictions and strict lockdowns when cases arise. The 13 million residents of Xi’an, in northwest China, have been confined to their homes for the past 12 days under the largest lockdown since the 11 million residents of Wuhan, where the virus first appeared, were contained in 2020, according to CNN.

The policy looked incredibly successful in 2020, but has now turned into a fight against a much more transmissible variant with wider blockages and vaccines of limited effectiveness, wrote Bremmer and Kupchan. “And the population has virtually no antibodies against Omicron. Keeping the country locked up for two years has now made it riskier to reopen. “

This is the opposite of what Chinese leader Xi Jinping wants the country to be heading into his third term, but there is nothing he can do about it, they said, arguing that the initial success of Xi’s zero-COVID policy and personal attachment to it now make it impossible to change course.

For the world, this means more supply chain disruption. “Shipping constraints, COVID-19 outbreaks and shortages of personnel, raw materials and equipment – all more acute due to China’s zero Covid policy – will make goods less available,” said they wrote. “High shipping prices will also hurt small and medium-sized businesses that don’t have the resources to reserve containers, let alone their own ships. Supply constraints are expected to ease over the course of 2022, but disruptions will persist in many sectors. Mid-year contract negotiations at major US ports and associated slowdowns will add to the challenges. “

High inflation, generating inequality, fueling economic insecurity and public discontent, will be exacerbated and remain a primary economic and political challenge, they said, noting that emerging market central banks are under pressure to raise rates. interest to contain inflation while central banks in developed markets look to stricter policies.

Major stock indexes rallied sharply in 2021 and were trading flat to slightly higher in choppy trading on Monday. The Dow Jones Industrial Average DJIA,
+ 0.17%
traded almost unchanged, while the S&P 500 SPX,
+ 0.18%
was up 0.1% and the Nasdaq Composite COMP,
+ 0.58%
advanced 0.7%.

Bremmer and Kupchan proposed nine other top risks for 2022:

  • A “technopolar” world: The conflict between governments and giant tech companies on the digital sphere.
  • United States at mid-point: This fall’s congressional election “will take place amid allegations of fraud by Democrats and Republicans, and they will stage a 2024 presidential election that Donald Trump, if he runs, either wins outright or tries to steal. », They wrote. “This year’s vote will not in itself cause a crisis, but it represents a historic turning point. ”
  • “China at home”: The previously mentioned complications around the zero covid policy combined with Xi’s reform plans will disrupt markets and businesses in 2022, Eurasia Group said.
  • Russia: The build-up of Russian troops on the border with Ukraine was already a cause for concern. It comes as Russian President Vladimir Putin insists on restrictions on NATO. A “big deal” is unlikely and close encounters between NATO and Russian ships and planes will become more frequent and dangerous, increasing the risk of accidents, they warned.
  • Iran: As Iran’s nuclear program progresses and diplomatic efforts stall, Israel is increasingly likely to take action on its own, raising the specter of strikes on Iranian nuclear facilities, Bremmer and Kupchan wrote. a recipe for volatile CL00 oil prices,
    + 1.25%

    BRN00,
    +1.59%
    and nervous regional states, and an increased risk of conflict.

  • “Two steps greener, one step back”: Rising energy costs will force governments to prioritize policies that lower energy costs but delay climate action.
  • “Empty lands”: Domestic concerns will distract attention from Washington and Beijing, while the European Union, the United Kingdom and Japan will prove unable to fill the void. In Afghanistan, the Taliban “will find it difficult to prevent the local Islamic State affiliate from attracting militants from other parts of the world to settle in ungoverned parts of the country,” they said. “The United States has a severely limited intention or capacity to intervene, and China has shown little interest. Afghanistan is regaining its pre-September 11 position as a global magnet for international terrorism.
  • Companies losing culture wars’: “Consumers and employees, empowered by the ‘cancellation culture’ and enabled by social media, will place new demands on multinational corporations and the governments that regulate them. Multinationals will have to spend more time and money navigating the environmental, cultural, social and political minefields, ”they wrote.

  • Turkey: President Recep Tayyip Erdogan will drag Turkey’s economy and international standing to new lows in 2022 in a bid to reverse falling poll numbers ahead of the 2023 election, Bremmer and Kupchan said. Unemployment is skyrocketing, inflation has passed 30% and the USDTRY lira,
    -2.18%
    is volatile. Expect Erdogan’s foreign policy to be more combative in 2022 to distract voters from the country’s economic woes – and in the unlikely event of an early election this year, all of those risks will be magnified.

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