‘Epidemic’ Is A Relative Term

Traders and investors were greeted by proliferating coverage of China’s latest COVID outbreak as the new week dawned.

State-run CCTV said more than 35,000 people in Inner Mongolia are under strict lockdown from Monday. The region accounts for around a third of new infections on the mainland discovered over the past several days. The flareup spread to nearly a dozen provinces in the space of a week.

Wu Liangyou, an official at the country’s National Health Commission, described the latest outbreak as unfolding in “rapid” fashion. “The number of non-tourism cases has begun to increase,” CCTV said, quoting Wu, who went on to state the obvious. As more people are screened, the number of cases will probably rise. “The scope of the epidemic may further expand,” he added.

China reported 39 new domestic infections Monday. Organizers of the Beijing marathon postponed the event until further notice citing COVID prevention. The run, which was expected to draw some 30,000 people, was scheduled for October 31. As SCMP noted, “The Wuhan marathon, which was due to have taken place on Sunday, was also cancelled at short notice amid worries over the coronavirus resurgence.”

A spokesperson for the NHC advised all affected areas to implement “emergency mode.” Anyone found breaking lockdown rules in Ejin county (in Inner Mongolia), could be found criminally liable, according to a statement from the local government.

In a testament to Beijing’s commitment to the Party’s “zero tolerance” approach to virus containment, these precautions are the result of just ~150 cases identified during the current outbreak. The US, by contrast, is still averaging 70,000 new cases per day. “Epidemic” is a relative term.

“The escalating curbs underscore the challenge even China’s formidable COVID restrictions face in controlling the highly-contagious Delta variant,” Bloomberg mused, reiterating that “the country is the only nation in the world still seeking to eliminate local transmission of the virus at a time when other so-called COVID zero stalwarts — from Singapore to Australia — have pivoted to treating it as endemic.”

Analyzing the situation from outside China is an exercise in futility. As ever, no one knows what the actual number of cases is on the mainland, likely including the Party itself, because it simply isn’t possible to measure it precisely in a country that large when the disease in question can manifest on a continuum between asymptomatic and death.

What’s clear enough, though, is that China’s draconian approach to containment risks exacerbating the country’s worsening economic slowdown.

Read more: Chinese Economy Decelerates Amid Crises

“This will not only hit an already-slowing economy, but global supply chains too,” Rabobank’s Michael Every said Monday. “Yes, that might ease congestion in US ports again temporarily, as did recent Chinese power-cuts [but] only because goods aren’t flowing, not because they are,” he added.

On the bright side, if there’s a winter wave in the west, that might be good for stocks, HSBC’s Max Kettner reckoned.

Even though a surge in infections might lead to more hospitalizations and deaths over the winter months, “from a market perspective, it need not all be bad news,” Kettner said, in a note. It would reduce economic overheating by crimping demand, thereby helping allay stagflation worries and perhaps removing the risk of premature tightening by major central banks.

“So all in all, this downside risk in our view would only be a very temporary one, and one we would quickly use to buy any dips in risk assets,” Kettner remarked. The bank does recommend reducing exposure to stocks and junk bonds in early 2022, though.

Coming quickly back to China, Xinhua on Sunday ran a propaganda piece in an effort to reassure domestic audiences.

“Observing the Chinese economy, we must look at it from a comprehensive dialectical and long-term perspective, so that we can clearly recognize the general trend in short-term fluctuations, unearth deep motivation from pressure and challenges, boost confidence in bright spots and resilience, and consolidate majestic efforts to unswervingly promote high-quality development strength,” it read.