Chinese Statistics Diverge From Covid Reality as Traders Fall Sick

Anecdotal evidence indicates Covid-19 is sweeping through China, which here on Monday reported its first official deaths from the disease in two weeks. But the official statistics are diverging from reality, making it hard to get an accurate picture as to the extent of the effects of the disease.

Beijing is reporting two Covid deaths, according to the official tally from the Chinese Center for Disease Control and Prevention. Those are the first deaths reported by the authorities since Dec. 3.

However, local reports note that the designated Covid-19 crematoriums have lines of hearses waiting outside them. As we saw early in the original Wuhan Covid outbreak, it is likely that local authorities do not want to record deaths in their district. They may pressure relatives to accept causes such as "pneumonia" on a death certificate and to cremate the body quickly before any autopsy is possible.

Reuters on Saturday afternoon counted 30 hearses stopped outside the driveway to the Dongjiao funeral home, a Covid crematorium in Beijing. There were also 20 body bags on the floor of the neighboring funeral home with no official Covid deaths reported that day and none since Nov. 23. Workers in hazmat suits handled all cases.

China today reported 1,995 confirmed new cases of Covid on Sunday. However, it has stopped counting asymptomatic Covid cases, where people test positive for the disease but don't show its effects.

Because testing for Covid was required daily for many activities but has stopped in most locations across China, the official numbers are no longer comparable with the figures from before Dec. 7. That's when China removed many of its anti-Covid measures and appeared to shift, suddenly, from the staunch zero-Covid policy championed by President Xi Jinping to a "live with Covid" stance.

It is not correct to say that Covid cases are exploding in China because all restrictions have been removed. They already were exploding with the zero-Covid rules in place, leading to mass demonstrations across China because the Covid rules were making it almost impossible to work, travel and live a normal life.

China is also recording an official death count of just 5,237 Covid deaths since the disease first reared its head in Wuhan in 2019, a tally that seems increasingly detached from reality day by day but has been championed by Chinese Communist Party officials.

Many businesses in mainland China report disruption due to their own workers contracting Covid and being unable to work. My wife gets custom printing materials and pet tags made in China, but the sourcing companies are contacting her to say production will be delayed because they're short-handed. The companies also say courier deliveries are not functioning as normal due to Covid infections.

Crematorium workers on site in Beijing told Reuters that while the site was busier than normal, they were short-staffed due to their colleagues falling ill.

On Taobao, the Alibaba Group Holding (BABA) online shopping site, one pack of 50 paracetamol-based Panadol pills is on sale for prices as high as ¥2,289 (US$328) inside China. Ordinarily, it would cost around US$19.

Pharmacies in Hong Kong and as far away as Australia and New Zealand have seen a run on cold and flu medicine, with the supply exhausted in some of China's largest cities. Mannings, one of the two leading drug stores in Hong Kong, has no stock of Panadol Cold & Flu Extra available through its online store. Watsons, the other main pharmacy chain in Hong Kong, has completely sold out of all that medicine as well as the "regular" Panadol pills used to treat headaches.

The Lunar New Year will usher in the Year of the Rabbit on Jan. 22, an early date for the holiday. With travel rules significantly eased, this Lunar New Year likely will be the busiest travel season in three years, an event that promises to dramatically enhance the spread of the disease. China last Monday deactivated a contact-tracing app, which had been used nationwide to produce a user code allowing or denying access to travel and public venues.

The city health commission in Guangzhou, the capital of China's most-productive province, Guangdong, today predicted that the virus infections will peak in early January. The justification for the change in official tune on Covid is that the disease has entered a new and less-pathogenic stage. The Guangzhou team reports that 80% of outpatients with fever are young or middle-aged. Nevertheless, the peak of the infection wave will test the limits of China's health system, which is lacking outside large cities, while there's concern about vaccine hesitance among older citizens.

There's already Twitter footage of patients in China receiving intravenous drips while sitting in the cold outside health clinics, and even through their car windows because local clinics are full.

Social media comments have questioned the purpose of the reported Chinese statistics on Covid because they seem to bear no relation to the scale of the disease. Meanwhile, the burgeoning infection count is disrupting a widening circle of companies and industries.

Today, the Japanese chipmaker Renesas Electronics (T:6723 and (RNECY) ) said it had suspended work at its Beijing factory due to Covid-19 infections. Stock and currency traders are reporting that many if not most of their colleagues are absent from trading floors and instead are at home, sick.

Chinese markets have been relatively resilient. But the CSI 300 index of the largest listings in Shanghai and Shenzhen fell 1.5% on Monday on relatively thin volume that may be attributable to low headcounts at brokerages. The Hang Seng Index in Hong Kong fell 0.5%, in line with the narrow declines notched around Asia.

Economists will need to base any predictions of the Chinese economy on private calculations of the extent of Covid inside China. Nomura is forecasting GDP growth of just 2.8% for 2022 in Chin, with "rising downside risks," far from the government's forecast of around 5.5%

Last Thursday and Friday, senior officials held the Central Economic Work Conference, designed to lay out plans for the economy in 2023. There was no forecast for next year's growth, though we can expect Beijing to provide one at its annual March meeting.

Covid was rarely mentioned in the conference statement, and the concept of "common prosperity" used by Xi to push a Maoist and apparently anti-business campaign was dropped entirely. However, we can expect a continued push for deleveraging in the real estate industry because Xi's mantra that "houses are for living in, not for speculation" was repeated.

Also repeated was a new phrase minted at a Politburo meeting a week ago, that monetary policy must be "targeted and forceful." The work conference said it's important for the government to support both private business and state-owned enterprises, but beside the need to balance those two sectors, we know nothing as to what that support entails.

Estimates vary dramatically as to how widespread the Covid infection count and mortality rate in China will be. There's little in the way of natural immunity because zero Covid kept infections very low. And we also know little about the efficacy of Chinese-made vaccines, which have not been extensively tested in peer-reviewed research.

The head of the Center for Disease Control in southwestern Guangxi region, Zhou Jiatong, estimates that China would experience 233 million infections and at least 2 million deaths if it follows the more open Covid response seen in Hong Kong. Should China experience a similar death rate to the United States in its own outbreak, more than 4 million of China's 1.4 billion people would likely die.

At the time of publication, McMillan had no positions in the stocks mentoned.