1 China’s COVID death toll is likely much higher than the CCP’s figure
On Jan. 14, the PRC National Health Commission announced that China recorded 59,938 COVID-related deaths between Dec. 8, 2022, and Jan. 12, 2023. The PRC Center for Disease Control and Prevention had previously reported just 37 COVID-related deaths between Dec. 7, 2022 and Jan. 8, 2023.
Observers believe that the CCP authorities had underestimated China’s COVID-19 death toll for the past month and the three years of the pandemic.
Zuo-Feng Zhang, chair of the department of epidemiology at the Fielding School of Public Health at the University of California, Los Angeles, told Bloomberg News that China’s official death “might be the tip of the iceberg.” Working off a National School of Development at Peking University’s report that found 64 percent of the population infected by mid-January, Zhang estimated 900,000 COVID-related deaths over the previous five weeks based on a conservative 0.1 percent case fatality rate.
Louise Blair, head of vaccines and epidemiology at the London-based predictive health analytics firm Airfinity, told Bloomberg that her company estimates China’s total COVID-related deaths at 390,000, with a potential range of 77,000 to 945,000 based on fatalities observed in other countries.
Li Hongzhi, the founder of Falun Gong, told Dajiyuan (the Chinese-language edition of The Epoch Times) that China’s COVID-related deaths over the past three years numbered 400 million. Li added that 200 million Chinese had died from the SARS coronavirus in 2003, and the CCP quickly shifted from a one-child policy to allow two, and then three, children per couple after it found out that the population was in severe decline.
Our take
1. The CCP always claims that it is “great, glorious, correct” (偉光正), but acts in accordance with “deception, perniciousness, struggle” (假惡鬥). Data falsification is a form of deception, and the CCP authorities have long “massaged” its official figures to make Communist China appear “great, glorious, and correct.” Meanwhile, local officials often fake data to advance or preserve their respective careers (for example, see item three in this newsletter).
Given the CCP’s history of data fraud, it is reasonable to suspect that the nearly 60,000 COVID-related deaths over the past five weeks as officially reported do not come close to the actual figure. In examining the CCP’s cover-up of the initial outbreak in Wuhan three years ago, the 2021 census data, and recent reports about busy crematoriums in China, we believe that the total COVID-related death toll in the five weeks since “zero-COVID” was eased could be as high as 100 times that of the official number.
Wuhan outbreak and census
- In analyzing publicly available funeral home and cremation (including mobile incinerators) data at the time of the Wuhan outbreak in 2020, we estimated that the COVID-related death toll in Wuhan was at least 35 times higher than the official figure (see here, here, and here).
- China Mobile, China Unicom, and China Telecom lost a combined total of 14.472 million cellphone users (later found to be 21.073 million) in January and February 2020, according to Hong Kong news reports at the time. We extrapolated that China could have seen 1.447 million COVID-related deaths in the first two months of 2020 alone if just 10 percent of the cellphone account cancellations were due to deaths from the novel coronavirus.
- In examining the data contained in the PRC’s Seventh National Population Census, we estimated that COVID-related deaths could “potentially be in the eight-digit range” and China’s population is less than 1.4 billion as officially claimed.
Post ‘zero-COVID’ outbreak
- China’s hospitals and crematoriums have been badly overwhelmed since the beginning of December, according to reports and information from Western media, overseas Chinese language media, and Chinese social media. Some cities are reportedly building more crematoriums and furnaces (Beijing Municipality is rumored to be building 60 furnaces in January 2023) and keeping bodies in cold storage warehouses, while crematoriums are reportedly burning multiple bodies per furnace. There are also reports of people resorting to makeshift cremations in residential areas and on roadsides.
- According to data from the PRC Ministry of Civil Affairs, there were 6,619 cremation furnaces in the whole of China in 2020, and 7,043 at the end of 2021, an increase of 6.4 percent. Assuming the rate of increase was steady, China would have about 7,500 furnaces in 2022. China’s furnaces can handle a total of 225,000 corpses a day if they are operated for 24 hours and cremate 30 corpses per furnace. At the peak of the latest pandemic wave in China where people had to wait in line for a week to cremate the bodies of their relatives, crematoriums could have as many as 1.575 million corpses waiting to be cremated. The estimated cremation capacity figure does not include corpses that were cremated by means other than furnaces, such as mobile incinerators in Wuhan and makeshift cremations.
- Ministry of Civil Affairs data tracked 5.966 million cremated remains in China in 2021, with a cremation rate of 58.8 percent. The data suggests that about 40 percent of people who die each year are likely from economically less developed regions that might not have many crematoriums, if any; traditional Chinese funeral practice prefers burial to cremation. During a pandemic, the deaths of people in rural and less economically developed parts of China with fewer medical resources cannot be easily captured by cremation data, and could be significantly underreported.
- About 10 million people die in China each year on average, or 27,400 people per day. The cremation data and rate above suggest that the daily average death toll during the peak of the latest pandemic wave in China could be in excess of 3.06 million people (assuming an 8-day cremation backlog [1.8 million corpses] and a 41.2 percent burial rate [1.26 million corpses]), or 111.7 times the normal daily average deaths.
2. It is easy to be skeptical that millions of people could potentially have died due to COVID-related reasons recently and over the three years of the pandemic. However, an estimated 30 to 40 million people died from starvation during the Great Leap Forward when China’s population was much smaller (about 660 million), and many Chinese remained oblivious to the mass depopulation that had taken place or its scale.
Today, the Chinese people and external observers may find it even harder to notice a steep decline in the population due to the following reasons:
- CCP censorship and techno-totalitarianism have advanced greatly since the Great Leap Forward period, restricting access to information and the sharing of information about COVID-related deaths in China. The CCP also habitually manipulates economic data, which makes it harder to notice any significant population declines through key indicators like consumption and loans, for instance.
- Many parts of China were placed under strict lockdown over the past three years and people’s movements were severely restricted. As such, an increase in deaths that might have been noticed under normal circumstances did not come to the attention of many people. Meanwhile, officials, hospitals, and crematoriums who have a better idea of the death toll were likely instructed to stay silent and cover up the true number of COVID-related deaths.
- The death of roving migrant workers (that is, migrant workers who travel outside their household registration areas for employment) and those without a fixed residence would have flown under the radar. According to official data, there are about 170 million roving migrant workers in China.
A drastic increase in deaths of people in rural areas, who have poorer medical facilities or access to healthcare, would be less noticeable than those living in cities.
An indicator that China’s population saw an unusual decline in recent years can be inferred from the CCP’s admission on Jan. 17 that the country dropped by 850,000 people to a population of 1.41175 billion in 2022. This was the first officially reported decline since 1961, or when China was still in the Great Leap Forward and suffering a massive famine.
That the CCP publicly acknowledged a population decline—a sensitive matter with economic and investment implications for the regime—suggests that the situation is likely far worse than depicted. Thus, the authorities engaged in damage control by admitting that the population had shrunk somewhat (a classic CCP tactic of admitting to partial setback in order to cover up a far greater disaster) so as to throw off suspicion and keep the international community optimistic about China’s growth prospects and “mass markets.”
3. We see several reasons why COVID-19 appears to be deadlier in China as compared to other countries:
- The PRC’s socialist healthcare system is not as efficient as those in more developed countries. People are funneled to hospitals instead of to clinics as in some countries, which facilitates the spread of the virus and quickly overwhelms hospitals. Moreover, the healthcare system has to cope with corruption (as with most parts of the government) and has to devote substantial resources to treating the Party elite.
- Deaths among the CCP elite rose following the latest outbreak, particularly among elderly cadres. While age is certainly a factor, cadres having lowered immunity from taking immunosuppressive drugs due to their receiving organ transplants may be another reason. For example, Zhu Yongxin, a member of the Standing Committee of the Chinese People’s Political Consultative Conference, wrote in a Dec. 11 obituary for the deceased Gao Zhanxiang (former Party secretary and vice chairman of the China Federation of Literary and Art Circles) that the latter had “replaced many organs in his body” in “fighting diseases tenaciously” over the years.
- The PRC vaccine and COVID-19 treatments may not be as effective as the CCP has advertised.
- A deadlier variant of COVID-19 could be spreading in China.
What a high death toll entails
A COVID-related death toll that is substantially larger than what the CCP authorities claim has several implications:
- The PRC’s post-“zero-COVID” recovery will be stymied. In particular, China’s economic “rebound” will be lackluster at best, and is more likely to noticeably fall into recession. This will in turn impact the global economy and endanger regime survival.
- International businesses and investors will reconsider investing in China and capital outflows could escalate.
- If the death toll is sufficiently large and not heavily weighted towards the middle and older age groups, China’s demographic time bomb would explode and bring forward many demographic-related problems that the CCP is only expecting to deal with several years down the road. Again, regime survival is threatened.
- The international community could take action against the PRC for not being sufficiently transparent with its COVID-related death data and the pandemic situation on the mainland at large. International pressure against the PRC could also ramp up if the global pandemic and economic situation worsen as Chinese people travel abroad following the easing of “zero-COVID.”
- Xi Jinping will come under intense scrutiny and pressure from the CCP elite over his ineffective “zero-COVID” and the disasters it has brought to the regime. This could lead to political Black Swans and trigger a “Berlin Wall moment.”
Get smart
Businesses, investors, and governments should be very skeptical of the CCP’s COVID-related death figures. They should also prepare contingencies for the possibility that China saw a sharp decrease in population following the recent outbreak and during the lockdowns of the past three years, and the impact this phenomenon would have on China’s political, economic, and social stability.
2 Local gov’ts announce bullish, ‘Great Leap’-style GDP targets
Central and provincial governments recently released growth targets for this year and GDP figures for 2022.
Jan. 16
All 31 provinces in China revealed their GDP growth targets for 2023 during their respective “Two Sessions,” according to official media. Growth targets announced range from 4 percent (Tianjin) to 9.5 percent (Hainan), with most provinces setting a target of between 5 percent to 6.5 percent. Twenty of the 31 provinces aimed for a 6 percent growth rate.
Additionally, 24 provinces announced their GDP figures for 2022, all of which reflected positive growth. Twenty-two of the 24 provinces gave an actual GDP growth figure of between 2 percent to 5 percent, with two of the highest being Jiangxi (estimated at 5 percent) and Ningxia (estimated at around 5 percent), and with Chongqing, Guizhou, and Guangdong expecting 2 percent growth. Meanwhile, Beijing Municipality and Hainan claimed to have “positive growth” in 2022, but did not give specific figures.
Jan. 17
The PRC National Bureau of Statistics announced that China’s GDP for 2022 was 121.02 trillion yuan, an increase of 3 percent from a year ago “at constant prices.”
On Dec. 27, 2022, the NBS announced that the “final verification” of China’s GDP for 2021 was 114.92 trillion yuan “at constant prices,” an increase of 8.4 percent from 2020 and up 0.3 percentage points from the preliminary figure.
Our take
1. The CCP’s 3 percent GDP growth rate for China 2022 is almost certainly inaccurate considering that strict lockdowns were imposed in many parts of the country for a good portion of the year and with the economy noticeably shrinking in the fourth quarter.
A closer look at the CCP’s own data shows a disconnect between the official GDP figure and key economic indicators:
- The national investment in fixed assets (excluding rural households) in 2022 increased by 5.1 percent (2.76 trillion yuan) year-on-year to 57.21 trillion yuan. The increase, however, represents just 2.4 percent of China’s GDP in 2021.
- Real estate development investment, a key pillar of the economy, declined 10 percent (1.47 trillion yuan) from a year ago to 13.29 trillion yuan. Meanwhile, commercial housing sales dropped 26.7 percent (4.86 trillion yuan) to 13.33 trillion yuan. Those two indicators represent a combined reduction of 6.33 trillion yuan in 2022, or 5.5 percent of the 2021 GDP.
- Total retail sales of consumer goods (an index of consumption) fell 0.2 percent from a year ago to 43.97 trillion yuan. Meanwhile, the manufacturing purchasing managers index (PMI) fell from 49.2 to 47 from October to December 2022, of which new export orders were below 50 for all 12 months of the year. Additionally, the non-manufacturing PMI declined from October to December 2022, down 41.6 from 48.7. Finally, the services PMI fell for four consecutive months from September to December 2022, down 39.4 from 48.9.
A number of economists and financial institutions were anticipating China’s GDP growth to be around or less than 3 percent in December 2022 after considering the impact of lockdowns and the health crisis following the relaxing of “zero-COVID.” Notably, the World Bank expected China’s real GDP growth to slow to 2.7 percent in 2022. Many financial institutions also expressed doubts that China would see 5 percent growth in 2022 after Han Wenxiu, the executive deputy director of the Central Financial Leading Group Office, seemed to indicate as much when he said on Dec. 17, 2022 that China’s total economic output would exceed 120 trillion yuan for the year.
By announcing a 2022 GDP figure that is slightly higher than 120 trillion yuan and a 3 percent growth rate, the CCP appears to have “massaged” its data just enough to play to the expectations of economists and financial institutions. Doing so allows the CCP to create the impression that things are “not so bad” in China despite very difficult circumstances, boost investor confidence, and sustain the myth of the “China success story.”
2. The optimistic growth targets set by provincial governments and their positive GDP growth figures are reminiscent of the Great Leap Forward period. At the time, officials had issued glowing production and harvest figures to stay “politically correct” even as grain yields and industrial output suffered, the standard of living plummeted, and a great famine swept across China. Now officials are setting glowing growth targets to cater to Xi Jinping’s expectations of economic recovery even though many localities are struggling just to sustain operations.
For example, Henan Province announced in its government work report on Jan. 14 that the province’s GDP exceeded 6 trillion yuan in 2022 (an increase of 3.5 percent) and that it expects to see 6 percent growth in 2023. On the same day, however, Zhengzhou University was found to have been unable to pay salaries to its staff because the Henan provincial finance department did not allocate sufficient funds to the school, according to information circulating on Chinese social media. Two days later, mainland media reported that the school had “paid salaries on time,” a sign that social pressure and “bad press” had forced the local government to scrounge up money to cover up the issue. Zhengzhou University is one of 140 higher education institutions in China that the CCP authorities have planned to develop into a world-class institution by 2050. This indicates that the Henan local government is very short of funds and the province is not doing well on the whole.
Local officials will be inclined to keep up the appearance that their local economies are performing even if the opposite is true as they realize that obeying Party Central and doing whatever the Xi leadership wants is the best way to accrue political capital and win promotion. In pursuing self-interests, officials could also roll out policies to grow the economy that would ultimately harm the regime’s interests and negatively impact the Chinese people; after all, Xi Jinping incentivized such behavior by promoting his ally Li Qiang to become the second-ranking member of the Politburo Standing Committee despite the latter’s disastrous implementation of “zero-COVID” in Shanghai. The officialdom’s self-sabotaging actions will further destabilize Chinese society and compound political risks for Xi and the CCP.
3. The CCP has long manipulated and falsified its economic data to create the impression that China is performing better than expected and preserve political legitimacy. Local officials are also prone to padding economic figures to ensure career advancement. Such behavior is less destructive to the CCP regime when times are good, but will seriously threaten regime security when times are bad.
As crises worsen for the PRC and regime survival is on the line, the CCP could become more daring in its data falsification and manipulation. Businesses and investors have to be doubly vigilant in consulting official data and not be taken in by optimistic-looking numbers that do not stack with what is actually observed in China.
3 Shandong government compels new energy vehicle firm to report false data
Li Guoxin, the founder of Shandong-based new energy vehicle company Levdeo, publicly accused Wang Xiao, the Party secretary of Changle County in Shandong’s Weifang City, of forcing his company and other large local firms to falsely report their key data. Li made his accusation at about 6:00 p.m. on Jan. 14 using Levdeo’s official WeChat account. Mainland media widely reported the development.
Late at night on Jan. 14, the Weifang authorities announced that the Shandong provincial government had formed and stationed a joint investigation team in Changle County to investigate and verify Li Guoxin’s claim.
The details
According to Li Guoxin, Changle County Party secretary Wang Xiao had compelled Levdeo and other large local companies to inflate their industrial and sales output value by tens of billions of yuan. In the case of Levdeo, the company was made to officially report an industrial and sales output value of 6.728 billion yuan in 2022 when the actual value was 2.045 billion yuan.
Li also reported the Changle authorities over a loan renewal issue. He said that the Changle government had facilitated a 1.3 billion yuan guaranteed loan to Levdeo to acquire Yema Auto in January 2019. When the loan expired in July 2022, Wang Xiao was unwilling to provide collateral for Levdeo to renew the loan, and the company was forced to suspend work and production.
Li Guoxin said, “The local government decides the survival of the company. As the company’s founder, I’m afraid of offending Party secretary Wang Xiao and worried of being listed as a ‘statistically dishonest enterprise,’ which will affect the company’s creditworthiness. After weighing the pros and cons, I have no choice but to report the (fraudulent) data as required by Party secretary Wang.”
Levdeo background
Founded in October 2012, Levdeo Auto was once a leader in China’s low-speed electric vehicle industry. Between 2016 to 2018, the company sold the most units of low-speed electric vehicles (150,000 units, 210,000 units, and 287,000 units respectively).
After Beijing prohibited the production of low-speed electric vehicles in November 2018, Levdeo acquired Yema Auto in early 2019 for 1.46 billion yuan and made the shift to manufacturing new energy vehicles. The Letin Mengo, Levdeo’s new battery-powered city car released in April 2021, would sell 20,556 units in 2022, according to publicly available data.
Our take
1. We have expressed skepticism on numerous occasions about Xi Jinping’s prospects of turning around the Chinese economy by abandoning “zero-COVID” and adjusting policies due to the intractable deficiencies of the CCP system.
The Levdeo fraudulent data incident is an example of Party culture-ingrained officials prioritizing local interests over regime interests, and in the process sabotaging the latter interests. The incident also indirectly shows that China’s economic deterioration is far worse than what the official figures let on. Severe data falsification is very unlikely to be limited to just Levdeo and Changle County, but is almost certainly nationwide and pervasive in many industries as companies and local governments struggle to produce “results” under “zero-COVID” conditions.
The exposing of data fraud is a net negative for Xi. On the one hand, the Xi leadership can take advantage of the incident to more thoroughly “rectify” the regime and get rid of corruption. On the other hand, the incident undermines the official narrative and data showing that the Chinese economy did not suffer much, or at least did not suffer as much as other countries, under “zero-COVID.”
2. Data falsification aside, the Levdeo incident reflects the plight of China’s new energy vehicle industry and local government fiscal issues.
Three years of lockdowns and the central government’s “three red lines” property rules have seriously impacted local government revenue. With much less funds, local governments like the one in Changle County would not be able to provide financial guarantee support to industries as they did in better times. And when times are bad, the CCP authorities are inclined to withdraw financial support to unprofitable industries first, as was the case when the authorities terminated the new energy vehicle purchase subsidy policy on Dec. 31, 2022.
The new energy vehicle industry in China has been underperforming for some time. Chen Shihua, the deputy secretary-general of the China Association of Automobile Manufacturers (CAAM), told mainland media in August 2022 that the industry was operating at an effective loss.
On Jan. 12, the CAAM released some data that seemed to show that China’s new energy vehicle industry held promise. Per the data, the industry produced and sold 7.058 million units (up 96.9 percent year-on-year) and 6.887 million units (up 93.4 percent year-on-year) of new energy vehicles respectively in 2022. New energy vehicles also took up 25.6 percent of the auto market share. Further, BYD Co sold 1.8624 million passenger vehicles (up 155.1 percent year-on-year) in 2022 to surpass Tesla in electric vehicle sales that year.
The markets, however, were unimpressed by BYD’s sales. In early January 2023, the company’s shares in Hong Kong fell 39 percent from its peak at the end of June in 2022. Meanwhile, Warren Buffett’s Berkshire Hathaway sold 1.06 million BYD shares for HK$202.5 million on Jan. 3, reducing its holdings to 13.97 percent from 14.06 percent. This was the seventh time that Berkshire Hathaway reduced its long-held 225 millions shares in BYD since August 2022.
3. Businesses and investors should recognize from the Levdeo fraudulent data incident the serious problem of the CCP’s long-term falsification of official economic data and officials covering up risks for the sake of producing political “results.” Those who are looking to reallocate assets with the expectation that the Chinese economy will rebound in 2023 do so at their own peril.
