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With the COVID lockdown protests, how stable is China's economy?

A MARTÍNEZ, HOST:

The economic effects of the zero-COVID enforcement that sparked these protests in China could be felt worldwide. Economist Stephen Roach joins us now. He's a senior fellow with the Paul Tsai China Center of the Yale Law School. Stephen, even before these protests began, China was expected to see slower growth. Now what kind of economic shock waves could we see?

STEPHEN ROACH: Well, the lockdowns right now, by accounts I've seen, are impacting areas that account for slightly more than 25% of Chinese GDP. Compare that with last April, when the Shanghai impacts were at their maximum, that number was 21%. So it's going to continue to have a significant hit to GDP growth. And China's growing right now at rates that are far short of its longer-term trend. And that's a real problem for the world, which is also heading toward recession in Europe and possibly the United States next year.

MARTÍNEZ: And China's president, Xi Jinping, I'm sure he knows what you just told me, Stephen. So why continue them if it's hurting the GDP like it is?

ROACH: Autocrats have a hard time admitting they're wrong. We know this policy is a complete, unmitigated disaster. But at the end of the day, Xi Jinping wants to stand up and proudly boast that the Chinese system limited fatalities in a way that the West would only dream of. And he views that as his real mark of success, despite the near-term problems.

MARTÍNEZ: So he views COVID as a greater threat than a slow or a slowing economy.

ROACH: Well, he thinks that COVID containment on a near-term basis is a price worth paying for a shortfall of economic growth. And he's confident that the economy will bounce back. I don't share that confidence at all. I think post-COVID, the rebound is going to be very limited for a variety of reasons that I've written about. But...

MARTÍNEZ: Why do you think that?

ROACH: Well, two things. One, the working-age population is declining because of the demographic problems. And secondly, the productivity that really boosts the leverage of Chinese workers is also weakening and likely to get worse. And I think that's a lethal combination for any economy. China is not an exception to that rule.

MARTÍNEZ: So how long do you think, Stephen, before there is a significant impact on the global supply chain?

ROACH: Well, we're already seeing it with Apple. You know, the quintessential multinational producer is reporting a major production shortfall in the holiday selling season. Apple's already diversifying some of its China exposure by actually, surprisingly, starting to make some iPhones in India. So these impacts are here and now.

MARTÍNEZ: If you're an American company that has production in China and there's a shutdown near your facility, I mean, is that something that American companies need to start worrying about?

ROACH: Absolutely. Don't put all your eggs in one basket. China's been an extraordinary offshore production platform for many multinationals, but it's time to really think actively and seriously about a diversification strategy. And Apple is certainly an example of that.

MARTÍNEZ: What are some of the other potential consequences outside of China's borders with all this?

ROACH: Well, as China continues to suffer from a gross shortfall of zero-COVID, global demand comes down. That will provide some relief to the inflationary pressures and to energy markets. So that's a welcome development for people worried about inflation. But there's no mistaking the fact that the world needs a China growth cushion. That was very important in keeping the world afloat in the aftermath of the global financial crisis of '08 and '09. And that's not going to be a supportive factor going forward, and that's a disconcerting development.

MARTÍNEZ: So how does Wall Street see this? You mention '08 and '09.

ROACH: Well, I think, you know, Wall Street views this as a negative for global economic growth, which is clearly an impact on recessionary trends in the U.S. and Europe. There's some talk that this is going to be a replay of Tiananmen Square, and that would be very disturbing for investors around the world. I think those fears are overblown. They're - back in 1989, there was a political rallying cry around the death of Hu Yaobang. That's not present today.

MARTÍNEZ: Economist Stephen Roach with the Paul Tsai China Center of Yale Law School. His new book is out today. It's called "Accidental Conflict: America, China, And The Clash Of False Narratives." Stephen, thanks.

ROACH: Thank you. Transcript provided by NPR, Copyright NPR.