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China COVID shutdowns are a 'source of concern' for global growth: Expert

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Shehzad Qazi, China Beige Book International Managing Director, joins Yahoo Finance Live to outline protests occurring in Central China over frozen bank accounts and the impact of the country's Zero-COVID policy on global economies.

Video Transcript

RACHELLE AKUFFO: All right. We're shifting gears now to turmoil in China this Monday. Asian markets closing mixed today after the country imposed fines on tech giants Alibaba and Tencent. Plus, concerns of a potential bank run, amid protests over frozen deposits in Henan province.

Joining us now with more on that and other stories from the region is China Beige Book International managing director Shehzad Qazi. Good to have you back on the show. So I want to first start with what we've been seeing in terms of questions about a potential bank run. As far as we know, this is limited to Henan province, but what exactly is going on with some of these smaller banks there?

SHEHZAD QAZI: Yeah, what you're seeing right now is, quite frankly-- the bottom line is that there's quite a bit of wrongdoing that is taking place at the local level. The fact that you've had depositors who haven't been able to access their bank accounts for several months now, and that you've had this massive scandal being exposed, is obviously quite embarrassing.

Now, as you said, the good news is that this is not some kind of national bank run. As a matter of fact, I think some folks, some big investors have gone on places like Twitter and tried to say there are bank runs all over China. That's just simply not happening right now.

So I think it's important to understand that the problem, while embarrassing and while very severe, is certainly, for now, constrained to Henan province and constrained to these four banks where the problem has taken place.

DAVE BRIGGS: Embarrassing, but how troubling is it by the overall state?

SHEHZAD QAZI: Yeah. I mean, look, it's very troubling. Let's not forget the fact that you have health officials who decided to manipulate people's health codes, and make it seem like they had tested positive for COVID to restrict their movements. So you already have a rather strict-- some people would call it, draconian-- zero-COVID policy on the ground, where the movement of individual citizens is most certainly controlled by the codes that are assigned to them.

And so you can have somebody get in there and actually manipulate it, manipulate the codes in a way where you can no longer go somewhere or would be allowed to enter. That's pretty scary stuff. It's pretty embarrassing stuff to come out as well.

RACHELLE AKUFFO: And so we know that with this zero-tolerance COVID, we thought that it seemed at first that China was going to be the first major economy to really sort of emerge victorious from this. But now, we're sort of seeing some of the domino effects of that. How much of global economic growth is dependent on what happens with China's economic growth and its ability to really come back and have a recovery with having zero-COVID policy in place?

SHEHZAD QAZI: Yeah, so I think that's a core point-- that what you're seeing going down right now in Henan, I think-- in Henan province-- is most certainly troubling at the local level. It doesn't represent a systemic crisis. I think it's way too early to make that conclusion.

But the real issue then becomes, China actually has very serious economic headwinds that it's facing right now. And at the heart of all of those really is the zero-COVID policy. We have seen just, again, in recent days, several areas in Shanghai, again, being labeled as medium-risk, some as high-risk.

And that has very serious implications for the Chinese economy itself, as we know now after months and months of lockdowns taking place repeatedly. Chinese consumption, whether it's on the retail side, the services side, whatever you may have, suffers almost as soon as any type of minuscule lockdown goes into effect.

We know for a fact that the smallest amount of port closures or reduction in factory activity has very serious global implications, from a supply chain logjam standpoint. So China's zero-COVID policy remains a pretty serious source of concern, as far as global growth is concerned, as far as Chinese growth, of course, itself is concerned-- its own domestic economy-- even if it doesn't have a direct or immediate effect on other major economies like the US.

DAVE BRIGGS: 247 million impacted by the current lockdowns. You mentioned growth there in China. We get Q2 GDP. I think it's end of the week, Friday. What's your expectation in what's happening with the tech sector, seeing Alibaba shares down more than 9% today?

SHEHZAD QAZI: Look, I think the Chinese GDP numbers are always political figures. And it's looking pretty likely that the NBS, and then, really, the party are not willing to concede the serious downturn that they've actually experienced in the second quarter.

I mean, this is hands-down the worst economic environment in China right now since the original COVID-induced recession that you got in early 2020. But will the government be willing to accept a contraction in growth? I'm a little suspect about that.

RACHELLE AKUFFO: And to that point, we've seen a lot of discussions about the sort of fiscal stimulus that China wants to bring in. But what have we actually seen in reality? What are we actually seeing in terms of what's being rolled out and how that's impacting the economy?

SHEHZAD QAZI: At best, I would say they're mixed signs, in the sense that when you gauge sort of what infrastructure companies or transportation, construction companies are doing through China Beige Book surveys, you see some amounts of pickup in activity. You see some amounts of increased borrowing.

But at the same time, investment is down, and really, new projects are still-- were still slowing well into June. So so far, you aren't getting the type of Big Bang fiscal stimulus that markets have been expecting. Now, perhaps this will change a little bit.

But let's keep in mind that you cannot do fiscal stimulus when you're simultaneously locking down parts of the economy, or perhaps a big chunk of the economy. And we should also remember that monetary stimulus will similarly have very limited impacts if you are just curtailing the ability of a business to function.

So stimulus cannot deliver if zero-COVID remains the number one priority, and President Xi's told you that zero-COVID is all that matters right now.

RACHELLE AKUFFO: Well, we'll see how that continues to impact the economy and investment there. Thank you so much. Shehzad Qazi there, China Beige Book International's managing director. Thank you.