Geopolitical Monitoring Report | December 2, 2022

China

China Protests May Foreshadow a Loosening of Zero COVID Restrictions and Highlight the Growing Reputational Risk of Doing Business in China

Background:

Protests against China’s strict zero-COVID policies – which require the enactment of strict quarantines and mass testing upon the detection of a single COVID-19 case – have been occurring since last weekend and have begun to expand beyond COVID-related grievances.

The movement – which began in a has expanded to criticism of recently re-elected Chinese President Xi Jinping’s regime and the rule of the Chinese Communist Party more broadly. Demonstrators have taken to the streets in some of China’s largest cities – including Beijing, Shanghai, Guangzhou, and Chongqing – in what is the largest challenge to Xi’s rule since he came to power in 2012. The protests have already led to cracks forming in China’s strict rules COVID, with Guangzhou and Chongqing announcing that they will be easing COVID-19 curbs.

However, China is unlikely to be able to fully end zero-COVID due to low levels of natural immunity and large numbers of people in at-risk groups not being fully vaccinated. President Xi has also made zero-COVID into a personal political project that was part of his justification of why he deserved a third term as the country’s leader during last month’s 20th Party Congress.

This means that the demonstrators were aware that protests against zero-COVID policies would widely be perceived by Xi and other party leaders as a direct challenge to his continued leadership and is likely the reason they have begun to go all-in on demanding his resignation.

Impact:

China will likely quell this outpouring of dissent by using some of the same tools it has used to contain the COVID-19 virus. The strict COVID compliance and quarantine regime will enable Beijing to quickly tamp down on dissent by forcing protestors into isolation and quarantine.

China’s use of technology to suppress a protest movement has created significant reputational risks for computer giant Apple, after news broke the company had limited their airdrop feature – which was used extensively to send messages among protestors in Hong Kong in 2019 – in mainland China at the request of the Chinese Government. While the lockdowns have been lifted in cities where the company operates its factories, the move has led to accusations that Apple is complicit in the Chinese government’s repression of its people. While Apple has become the main foil for critics of China in the West, any company with operations in the country could see similar backlash as more US lawmakers become suspicious of businesses with operations in China as Xi cements an iron grip on power.

For example, Senate Intelligence Committee Chairman Mark Warner criticized Elon Musk’s close relationship with the Chinese government  – which was formed when the billionaire was building manufacturing plants for Tesla in the country – due to his purchase of Twitter. These types of criticisms may morph into more concrete actions, such as sanctions and import bans, depending on how China suppresses this round of unrest and how US and other Western lawmakers respond.

In addition, while zero-COVID is likely to be modified in response to these protests, the low levels of immunity among the Chinese population and the highly transmissible variants of COVID now spreading will force China to continue restrictive lockdowns to mitigate transmission. This means that supply chain disruptions will continue to disrupt supply chains  and additional lockdowns will now come with the prospect of civil unrest following this recent round of protests.

Mitigation:

Companies and organizations that have business operations or supply chains in China should be mindful of the growing risk of investing in the country as relations between Beijing and Washington continue to worsen. They should ensure they have proper OSINT Monitoring & Analysis capabilities set up to monitor outbreaks of civil unrest and general popular sentiment that would enable them to anticipate outbreaks of unrest.

The growing media and political backlash to companies like Apple and CEOs like Elon Musk over their close ties to authoritarian governments is likely to increase as Xi continues to tighten his grip on power. Companies should ensure that they have quality third-party intelligence capabilities that can ensure they can remain in compliance with any sanctions that are placed on China in response to its suppression of these protests or any unrest that occurs in the future. It is important to note that the blowback against Apple is coming as the company is cutting its reliance on supply chains in China.

Companies and organizations should note that public and government pressures to relocate out of a country may outpace their ability to quickly relocate, as evident by Apple’s continued production problems. While relocation outside of an authoritarian country may improve a company’s prospects by reducing its possible exposure to sanctions and reputational risk, it is important that companies considering such a move ensure they have conducted quality threat landscape assessments of their newly chosen location to ensure that they do not encounter unexpected risks in their new location.

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