China warning ! (OK, so it's 15 long :-) )

Investment Analysis Clubs Macro Economic Trends and Risks
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A while back, I posted that one of the Black Swans of the year would be if China had a massive outbreak of COVID. Despite the official numbers not being concerning, there have been reliable reports of infection rates in the millions per day, leading to an estimated near-term death rate in the millions. If you thought current supply chain issues were difficult and inflationary, wait until you see what six months of China laying on its back looks like.

Brace yourselves for disruptions of epic proportion.

Jeff

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near-term death rate in the millions

Not only that. Long covid affects 20% of people, even in heavily mRNA vaccinated populations. China suddenly losing part of itā€™s workforce permanently (0.5%?) but 40x that number (20%) for 6-12 months or longer is a concern.

There will be no period of gradual business adaptation as weā€™ve seen in the west over the past 2-3 years. Every business throughout the entire supply chain will be hammered with a large number of intellectually or physically crippled staff for the next year - brain fog, poor concentration, extreme fatique etc. This is on top of losing a large part of 1-2 months industrial output to immediate covid illness.

The covid deaths on the other hand will primarily be among the older and weaker people. I donā€™t think the deaths will be the big problem.

https://www.bloomberg.com/news/newsletters/2022-05-28/coronavirus-daily-long-covid-found-in-20-of-us-cases

Long Covid found in 20% of US cases

ā€œAbout 1 in 5 US adults have health problems from Covid that stick around long after they first test positive, according to a report from the Centers for Disease Control and Prevention published this week.ā€

I also wouldnā€™t be shocked to see a new strain or two rapidly emerge from this billion+ new infections, and a second super-wave that bypasses the first sets of antibodies, in the next 6 months or so.

Why? Because the current synchronised Chinese mega-wave is going to ensure every person in China has similar antibody resistance, and similar waning of antibody strength over time.

Whereas in Europe/USA, infections have been delayed e.g. ā€˜flatten the curveā€™, staggered over time, and people caught different combinations of strains at different times, various different vaccines and also multivalent vaccines have been used.

My parents for example have had Astrazeneca/chadox, Moderna, Moderna, and Moderna multi-valent omicron booster. Additionally, the old and young have received vaccines 1-2 months apart, so that part of the population is always at a high level of antibody count as another part of the population has waning immunity.

This will have resulted in a) more diverse antibodies and t-cell responses per person b) diverse levels of antibody count in any given person at different points of time - e.g. less synchronised waning and synchronised mega-outbreak risk.

In short, I think China will be having regular aftershock covid ā€˜mega-outbreaksā€™ every 6 months or so going forward where everyone all gets sick at the same time again, because antibodies all waned at roughly the same time.

These synchronised shocks will be massively disruptive to their healthcare system.

Itā€™s going to be the exact opposite of ā€˜flatten the curveā€™. I would not like to be working in the Chinese healthcare system this year. I have experience living in a Chinese society and people can be extremely demanding from hospitals even at the best of times.

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I was thinking a bit more about this. Say you lose 20% of China to long covid for a year all at once. Thatā€™s 20% of 1.4 billion, or 280 million people.

It would be like if the entire US workforce went off sick for a year, while continuing to consume.

I feel that would probably have an inflationary effect on the global economy.

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In the US, web-based trade exploded. I recently sold my Baidu, Tencent and Alibaba (over geopolitical concerns) and Iā€™m wondering if I should reacquire them.

Ant thoughts?

Jeff

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In the US, web-based trade exploded. I recently sold my Baidu, Tencent and Alibaba (over geopolitical concerns)

There is an ongoing and growing trade war and economic war between the US and China and tech companies are a focus.

It is likely impossible for you to acquire any meaningful/enforceable legal rights of ownership over these companies, other than a ā€˜profit promise to the Cayman Islandsā€™.

The lesson of December is that China can unpredictably and massively pivot at national scale, lately to such a degree that 1-2 million of their citizens will rapidly die in a horrifying, terrible way, suffocating to death as their lungs fail, in this recent case with covid. Tens of millions more will be injured for life. Hundreds of millions will be crippled by long covid.

They could have prepared for this - built up their hospitals, trained staff, used mRNA vaccines, stockpiled paxlovid, ā€˜flattened the curveā€™ by gradually unlocking rather than all at once. They did not. They had 3 years to get ready and it seems they just twiddled their thumbs for 3 years then panicked.

Do you believe that Chinese companies are a predictable and safe financial instrument to invest in at any price in this context?

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Iā€™ve had some success with Chinese stocks but mostly Iā€™ve been burned. In one such case it was an Austrian national selling American trade secrets to a Chinese competitor and even with all the facts perfectly clear the Chinese judicial system turned a blind eye.

Iā€™ll stick with Chinese food which I do like and Susie Wong was GORGEOUS!

https://www.google.com/search?q=Susie+Wong&newwindow=1&client=safari&rls=en&sxsrf=ALiCzsaZpybwTV5rJwfpgaeBucFGAB7mgQ:1671908425166&source=lnms&tbm=isch&sa=X&ved=2ahUKEwi_rp2e-JL8AhWJYKQEHev_DSAQ_AUoAXoECAEQAw&biw=1142&bih=610&dpr=2

The Captain

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While we should expect plenty of disruptions, Iā€™m not sure exactly what the large and/or long-term effects of a few million additional deaths of almost all over age 65 people in China. Seems like the main long-term effect will be to slightly improve the demographic imbalance in China.

China is uninvestable. Not a free country therefore you canā€™t truly ā€œownā€ anything there. Itā€™s not yours, it all ā€œbelongsā€ to the collective.

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