SinoInsight 1
Since the CCP started pushing local governments to resume regular work and production after the end of an extended Spring Festival break (Feb. 10), the central authorities have been publishing official coronavirus figures that indicate that the epidemic is dying down and that it has gotten things under control.
On March 3, Tu Yuanchao, the deputy head of the Hubei provincial health commission, said during a press conference that the authorities will gradually shut down temporary hospitals and reduce the number of coronavirus designated hospitals according to the “actual situation of epidemic prevention and control.” The province will also “gradually resume normal medical order.”
On March 4, the PRC health authorities announced 139 new coronavirus confirmed cases and 31 deaths, or 2.9 times fewer confirmed cases and 4.84 times fewer deaths as compared to Feb. 23, the day when Xi Jinping addressed 170,000 CCP members in a national teleconference about coronavirus prevention and control work. In contrast, South Korea, Italy, and Iran saw new confirmed cases increase by 2.6 times, 8 times, and 84.1 times respectively during the Feb. 23 to March 4 period.
As of March 4, the total number of coronavirus confirmed cases and deaths in China are 80,409 and 3,012 respectively per official data. Official data also indicate no deaths in provinces outside Hubei on four days of the 11 days between Feb. 23 to March 4.
OUR TAKE
1. The sudden and rapid “improvement” in China’s coronavirus situation from mid-February to the present runs counter to other coronavirus-related developments during the same period that were reported in state media and the overseas press:
a) On Feb. 21, Wuhan’s deputy mayor announced that an additional 19 temporary cabin hospitals will be constructed in the city to boost Wuhan’s bed reserves.
b) On Feb. 26, overseas Chinese language media Dajiyuan received insider information showing that the Shandong Centers for Disease Control and Prevention had tested and confirmed 49 new cases of the coronavirus on Feb. 19. The Shandong provincial government, however, only announced two new cases on Feb. 19, or 24.5 times less than what the provincial CDC reported.
c) On March 2, semi-official media Beijing News reported that the Anhui health commission had announced one confirmed case of the coronavirus that day. The patient, an “asymptomatic infection” case, was an employee in a branch of Anhui Guofeng Plastic, one of China’s largest plastic products companies. The discovery of the case led to the closure of the entire branch factory for “rectification.”
d) On March 3, The Wall Street Journal reported that the PRC was tightening coronavirus measures in Wuhan and Beijing despite lifting restrictions in other parts of the country and rushing people back to work. Beijing municipal authorities have shut down many tourist spots for over a month and people’s movements are being restricted. The Ministry of Transport has banned all taxis and ride-hailing services in Beijing from leaving the city, and those from outside are forbidden from entering. Anyone coming into Beijing from other parts of China or from countries where the outbreak is severe must be quarantined at home for 14 days. Also, residential districts are instructed to strengthen supervision while university students are advised against returning to school.
According to eye witness accounts, many residential districts have apartments affixed with quarantine seals and the residents living inside need to show a pass to enter or exit their premises. Supermarkets also require customers to maintain a buffer space of about 1.86 square meters from each other. Further, the 2020 Two Sessions, which were originally scheduled to be held in early March, has been postponed.
e) On March 3, Hubei deputy governor Yang Yunyan said during a press conference that the number of new confirmed cases in the city was increasing in the hundreds daily and that the epidemic risk was not yet under control. Yang stressed that the epidemic situation in Wuhan is still “severe and complicated” and that there were recently discovered cases of asymptomatic patients becoming confirmed with the virus, as well as cases of recovered patients suffering a relapse.
f) On March 4, semi-official mainland media outlet The Paper reported that a Wuhan citizen who had been discharged from a temporary hospital and transferred to a designated quarantine site on Feb. 26 had passed away on March 2. The report was later deleted after it had been widely circulated.
g) A March 4 report by Caixin.com cited an unnamed district-level official from Hangzhou, Zhejiang Province as saying that central inspection teams are using power consumption as a benchmark to assess the work resumption rate in the city. The “passing” grade for local companies is a power consumption rate that is 75 percent that of what was used on Jan. 8. And on March 10, companies in Hangzhou recorded a power consumption figure that was over 90 percent of what was used on Jan. 8. However, the district-level official noted that some factories were “instructed” to leave their machines running for the entire day while some offices were “instructed” to turn on their air conditioning and computers for the work day; whether or not work had actually “resumed” was another matter.
Caixin also reported that companies in Botou City, Hebei Province had opted to “resume work without production.” The person-in-charge of a local manufacturing company had bluntly told Caixin that the local work resumption data is “not true” and that the local government, being unwilling to bear the risk of not carrying out epidemic prevention and control work well, has kept in place policies that forbid factories from resuming work.
The Caixin report also cited figures from a data company released on Feb. 24 which noted that the work resumption rate in Zhejiang had exceeded 90 percent since the end of the extended Spring Festival break on Feb. 10. Meanwhile, Jiangxi, Shandong, Jiangsu, Liaoning, Guangdong and some other places reported a work resumption rate of over 80 percent, while work resumption rate in Fujian, Shanghai, and Guizhou is more than 70 percent.
h) On March 5, mainland media outlets reported that all flights after 1715 from Shenzhen and Guangzhou to Hangzhou would be canceled due to “public safety reasons.” Airport staff in Shenzhen told media outlets that the flight cancellations may be related to the coronavirus epidemic.
Based on our own research, we found that many domestic flights to Beijing on March 5 were canceled.
i) Recently, several videos of people collapsing and dying in the streets or in factories have been circulating on Chinese social media. There are also social media posts about workers being told to self-quarantine for 14 days at their own expense, creating problems for China’s migrant workers.
2. The PRC appears to have gotten a handle on the coronavirus if we compare the rate of the spread of the coronavirus in China with the rate of the spread in South Korea, Italy, and Iran. There are reasons, however, to be very skeptical of the PRC figures given the CCP regime’s propaganda agenda (projecting a “return to normalcy” in China) and tight control over information vis-à-vis the relatively freer flow of information in the rest of the world.
The rapid spread of COVID-19 in South Korea, Italy, and Iran is also worrisome when we consider that the coronavirus epidemic went largely unreported in December 2019 and the CCP regime only officially commenced epidemic prevention and control work from Jan. 20. It is inconceivable that there are only about 80,000 confirmed cases of the coronavirus in China with the bulk of cases found in Wuhan.
SinoInsight 2
Since mid-February, the CCP has been releasing information which suggests that it has the coronavirus epidemic under control and that China is rapidly moving towards “normalcy.”
After the acceleration of the spread of the coronavirus outside China in late February, PRC propaganda has even begun pushing the narrative that “China is saving the world from the coronavirus and the world should be grateful.” On March 4, state mouthpiece republished an opinion piece titled, “Be Self-confident, the World Should Thank China” that juxtaposed America’s approach to handling the coronavirus outbreak on home soil with that of the PRC’s. In an interview with AFP in January after the PRC had acknowledged the coronavirus, we noted that the CCP would very likely seek to paint itself as a world’s “savior” and cultivate the image of China as a responsible stakeholder, a move that is consistent with its tactic of spinning calamity into victory.
The PRC has also recently started pushing a new disinformation theory that the coronavirus originated in the United States and that U.S. intelligence agencies could have been behind the outbreak.
Additionally, the CCP appears to be manipulating its markets and has rolled out economic policies to attract foreign investment:
- According to mainland media reports, 13 provinces and municipalities have released their investment plans for key infrastructure projects in 2020 as of March 1. The investment plans list a total of 1,326 projects, and eight of the 13 provinces and municipalities announced planned investments totaling 33.83 trillion yuan.
- China’s A-shares markets (Shanghai and Shenzhen) saw total trading volume break 1 trillion yuan on Feb. 19 after hitting lows on Feb. 3. And between Feb. 19 to March 5, the A-shares markets saw total trading volume break 1 trillion yuan for 11 out of 12 days. The performance of China’s A-shares markets defied the epidemic situation; in contrast, global markets plummeted for several consecutive days after the rapid outbreak of the coronavirus in several countries near the end of February.
- The renminbi broke the 7 to the dollar level after the coronavirus outbreak was confirmed, but has in recent days strengthened to climb above the 7 mark.
- On March 2, Morgan Stanley upgraded China stocks from “equal-weight” to “overweight,” indicating that the Chinese equity markets can now provide shelter from the coronavirus. Morgan Stanley cited expectations of further policy stimulus and cheaper relative valuations for the upgrade.
OUR TAKE
1. Based on our observation, the CCP domestic and external propaganda efforts have been working, with some success, to:
- Cover-up the actual epidemic situation to convince the Chinese people to return to work and attract foreign investment, and hence preserve the PRC’s economy and safeguard the CCP’s political legitimacy.
- Convince the world that it has the epidemic under control through releasing dubious data and leveraging on a positive World Health Organization survey of the regime’s epidemic efforts in Wuhan.
- Spin calamity for the regime into victory for the CCP’s authoritarian system and its global leadership.
- Depict the CCP as the world’s “savior” to extract gratitude while simultaneously demonizing America to boost nationalism and escape culpability for the epidemic.
The CCP’s propaganda efforts go beyond slogans and are highly manipulative. Businesses, investors, scholars, and governments should never underestimate the sway of CCP propaganda or its ability to convince people to believe in a CCP-approved reality (see our explanation of the CCP’s Red Matrix).
A CCP-approved reality, however, is not the real world. As much as the CCP propaganda apparatus wills it, the coronavirus will not suddenly disappear overnight. Nobody should be deceived into believing that the epidemic situation in China has drastically improved just because the CCP “shows” and claims it to be so.
2. The PRC’s stimulus measures and “countercyclical” stock markets do not automatically make it a “safe haven” amid the coronavirus outbreak:
- The PRC’s 2009 4 trillion yuan stimulus ultimately caused China’s property bubble to expand dangerously and led China’s economic development to a dead end. The financial deleveraging campaign rolled out in 2017 was partly aimed at tackling the problems brought about by the earlier stimulus. There is a large question mark over whether the 33.83 trillion yuan planned for infrastructure spending will end up helping or hurting the Chinese economy.
- China has a shortage of U.S. dollars, and the Sino-U.S. trade war makes it harder for China to grow its foreign exchange reserves. China’s trade surplus with the U.S. was in 2019 was $295.8 billion, down 8.5 percent from the $323.3 billion in 2018; 2019 also saw China’s exports to the U.S. fall 13 percent and imports decline by 21 percent. The PRC’s worsening dollar shortage means that the 33.83 trillion yuan stimulus would inevitably cause a sharp devaluation of the renminbi.
- Zhong Nanshan, the scientist leading the PRC’s coronavirus investigation, said recently that he is confident that the epidemic situation will be “basically contained” by the end of April. We previously noted that financial analysts estimate that the PRC could see losses of as much as 5 trillion yuan (about 5 percent of China’s 2019 GDP) if the epidemic persists until the end of March; Zhong’s estimate, if accurate, means very tough times ahead for China’s 10 key industries (tourism, automobile, home services, clothing, cellphone, aviation, liquor, film, etc.) and a serious drag on the Chinese economy.
- A prolonged epidemic will have a disastrous impact on the purchasing power of the Chinese people. According to a June 2019 report on consumer financial literacy by the People’s Bank of China, as many as 560 million people in China have zero savings. Even after subtracting school children and retirees, this means that a good number of Chinese people will either have to take on more debt or go to work and risk getting infected in order to make ends meet. Declining consumer purchasing power and rising financial risks will impact regime stability, which in turn affects the CCP’s ability to guarantee that the PRC remains a financial “safe haven” from the coronavirus.
3. We are very pessimistic about China’s economic prospects. The health of the Chinese economy will have ripple effects for the global economy, and several countries will see tough times until global supply chains are rebuilt or restored.
We are also very skeptical about the CCP narrative that it is going to quickly bring the epidemic under control. We believe that there is a very good chance of another major outbreak emerging as soon as May 2020, if not the second half of the year. The second major outbreak will likely be worse than the December-January outbreak, will be even harder to contain, and could deal critical blows to the Chinese economy and the CCP’s political legitimacy.
Businesses, investors, and governments must look beyond the propaganda and make various preparations (coronavirus, political risk in China, etc.) to avoid being blindsided by Black Swan events.
