Thursday, December 1, 2022

What If Our Understanding Of China's "Zero Covid" Is 180 Degrees Wrong?

One story that has dropped from the headlines is China's property market, in part because the government has ordered the banks to open the nozzle on the liquidity fire hose. I think the official numbers are up to around $200 billion. But that's not even the amount of China Evergrande Group's debt ($300 billion), much less the rest of the sector, which itself is just a fraction of the total asset class which Goldman last year estimated to be the largest in the world at $62 trillion (but deflating fast)

What if the required rescue is 10 times the amount officially reported as being injected?

China would run into the same dilemma the U.S. faced when injecting $5 - 6 trillion into the American economy: If the powers-that-be allowed the economy to remain open as the liquidity poured in the resulting inflation would have been 40 -50% and would have hit the population within weeks. In China's case the rioting would have made the current protests look look like a convivial, collegial discussion group.

The lockdowns allowed the U.S. to bleed the inflation into the economy at a reduced rate, CPI is up 14% since January 2021, effectively deflating the Federal debt by a like amount or $4.2 trillion, equal to around 2/3 of the 2020 -2021 spending and liquidity injections.

The Chinese "zero covid" lockdowns make no sense from a public health standpoint and as one of my favorite China experts says, "Chinese are very smart people, there must be something else going on that you roundeyes don't see. And then he laughs when I tell him he is a racist.

On the other hand here is the causality as usually presented, from Time Magazine, December 1:

China’s Zero-COVID Trap

Protesters in China have demanded an end to the country’s draconian zero-COVID policy—a pandemic prevention strategy that President Xi Jinping claims has kept his people safer than less stringent measures taken by other nations—as the suffering it’s wrought is becoming increasingly unbearable.

Experts have said it’s unlikely the government will outright end zero-COVID anytime soon, though it may continue to tweak the policy. But even if Xi wanted to ditch the strategy altogether, as some localities are reportedly starting to do, that could bring about even more misery.

Zero-COVID—defined by city-wide lockdowns, mass testing, and enforced quarantines—was once a paragon of the containment approach toward the coronavirus pandemic. To this day, Johns Hopkins University data shows China to have the lowest COVID-19-related deaths per capita worldwide. The country’s death toll, according to the World Health Organization, is only at 30,205, compared to the more than a million deaths in the United States—though questions have been raised about the accuracy of China’s official data reports.

Over nearly three years, however, the same measures meant to protect China and its people have also exacted a devastating toll. Residents in some areas have found themselves scrambling for food and other resources, and others have blamed zero-COVID for deadly delays in emergency responses. Mental health in the country has plummeted, while the economic fallout, domestically and globally, continues to grow....


If we can believe the 30,205 deaths number, we can probably believe the liquidity injections numbers. 

If not, not.