Massive COVID Outbreaks In China Seem Certain To Ripple Through Global Economy

North American equity markets have so far largely ignored the rapid and enormous COVID outbreak in China that has engulfed the country after the abrupt removal of zero-Covid controls in early December. Amazingly, a senior Chinese health official on December 21 estimated that 250 million people, 18% of the population, were infected in just the first twenty days of December. 

Apparently 37 million people contracted the disease on December 20 alone. Extremely unpopular policies like mass testing, mandatory quarantines, and frequent lockdowns had controlled the virus prior to the massive policy change.

For perspective, the U.S. Centers for Disease Control estimates that since early 2020, about 100 million and 4.5 million of cumulative COVID cases have been reported in the U.S. and Canada, respectively, equivalent to about 32% and 12% of each nation’s citizens.

Not surprisingly, China’s economy has slowed dramatically. Traffic congestion in major cities has dropped to Lunar New Year levels when the economy comes to an effective halt. China’s Purchasing Managers Index (PMI) has fallen back to April 2022 readings. Note that a PMI below 50 indicates economic contraction.

Given all this, it would seem supply chain concerns could bubble up again in North America. Such pressures have eased significantly over the last few months. Moreover, supply chain disruptions can cause the prices of goods to rise, which would be an extremely unwelcome development in the global central banks’ ongoing battle to curb inflation.

Some of the China COVID data points are remarkable: on December 23, the chief health official of the city of Qingdao in the Shandong province (population around 9 million) said the city is facing “between 490,000 and 530,000” new cases a day. That equates to nearly 6,000 new daily infections per 100,000 residents per day. Similarly, the southern manufacturing city of Dongguan (population 10 million) reportedly sees 250,000 to 350,000 new cases daily, or 3,000 per 100,000 residents.

Source: Chinese Academy of Science and Technology for Development, National Development and Reform Commission

COVID vaccination rates in China are reasonably high. According to Reuters, about 86% of China’s adults over 60 have received at least two doses of vaccines. In comparison, about 94% of U.S. adults 65 and over have received at least one vaccine dose.

However, the China vaccines are far less effective than the Pfizer and Moderna messenger RNA (mRNA) vaccines, both of which are 90+% effective, that are used predominantly in North America. The two most heavily utilized Chinese vaccines, CoronaVac and Sinopharm are only deemed 51% and 79% successful, respectively, according to clinical trial data. CoronaVac and Sinopharm employ viral particles that have been killed. 

Information for this briefing was found via Edgar and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

Leave a Reply