E-piphany

This post has nothing to do with inflation (although to the extent that China’s problems are worse-than-advertised, the supply shock could be worse-than-expected and the resulting inflation impulse larger-than-expected). However, as a longtime participant in the financial markets – which, over the last decade or two has increasingly meant an observer of China and Chinese data – I have been absolutely flabbergasted at the evident willingness of press, government officials, and healthcare experts to accept at face value the reports China has released about the development of COVID-19. At worst, some observers will allow that these numbers might not be “verifiable,” but this is generally expressed as sort of a minor issue. Now, I realize that there are potentially partisan reasons to slant interpretations one way or t’other, but I don’t think this is a case of ‘ a little bit of wiggle room’ in the figures.

Just for fun, I decided to take what China has said about its experience with COVID-19 and use what we know about the development of the virus in the US to project what the true cases probably are. Obviously, as with any model, there are wide error bars…but it’s simply implausible that China is experiencing anything like what they claim to be experiencing. Here’s the math of it.

We know from the US and the rest of the world that the virus cases grow around 33% per day until they downshift “at some point.” See for example this outstanding chart from the Financial Times from last week.

That point of shifting is somewhat speculative and probably depends on a lot of things. But for our model we’ll assume that the virus grows in China at 33% per day and downshifts to a 2% growth rate (which is roughly what South Korea’s growth rate in new cases is now, so we are being very generous) at the point China claimed that the growth rate of new cases was starting to decline, roughly around February 11.

We also can infer from US numbers that the death rate is around 5%, with deaths taking about 5 days and recoveries about 17 days. So, we look backwards about 5 days to see the number of open cases, and realize about 5% of those will die. Similarly, we look backwards about 17 days and realize that about 95% of those cases eventually recover (recoveries take longer because they tend to be cases that were caught earlier, plus a ‘recovery’ is not defined until we get two negative tests while a death is pretty clear). There are a number of combinations of period lookbacks/mortality that work, but that’s about the best case. We can’t get a model that is consistent with the number of deaths we have in the US with a longer resolution time unless the fatality rate is much higher; if the fatality rate is lower than 5% it implies that cases resolve even faster than 5 days after detection which seems unlikely. Globally, the ratio of deaths to (deaths + recoveries) is about 16% (see here under “closed cases” for a source of that data), so 5% is quite conservative. Similarly, we can’t have the low number of recoveries we have unless recoveries take a lot longer than deaths to resolve, or the recovery rate is a lot lower (death rate is a lot higher) than 5%.

And that 5% is with the US having some advance warning, and outstanding medicine. I don’t have any reason to believe it would be lower in China. So those are the parameters I’m going to use. 33% growth rate of infections downshifting to 2%, 5% mortality rate, with resolutions happening in 5 days for death and 17 days for recovery.

The first case in China dates from 12/16/19.

Growing at the aforementioned rates, from 1 case on 12/16/19, China ought to have been around 72 cases by end of December. They admitted to 27. Since at low numbers the growth rate has a lot to do with idiosyncratic details of the particular cases, we will re-set to 27 on 12/31, to be generous. But recognize that there is some reason to think China was low by a factor of 2-3, two weeks in.

Growing at the aforementioned rates, China ought to have been around 14,300 by January 22, when they told the WHO they had 547 cases. (From here on, all of the data comes from Bloomberg whose numbers differ slightly, but insignificantly, from the Johns Hopkins data). So they’re off by a factor of about 25 from what we would expect, based on the experienced growth rates of other countries.

Around February 11, China claims to have had 44,653 cases. By our growth rates, it should have been more like 4.3 million. China must have had spectacular medicine! (even if we grow the 547 number from Jan 22, they would have been at 125k by Feb 11). So it looks like by Feb 11 China was already off by a factor of between 3 and 100. The 3 requires us to believe that they were being completely honest on Jan 22 when they said 547.

So let’s assume the new cases downshift on Feb 11 to only 2% growth. Even starting from their 44,653, we would see 109k cases by now (March 27) if growth rates were only 2%. Literally the only way to get to China’s figures is to say that the transmission rate was never very high, despite the widespread travel around the Chinese New Year and the fact that as the origin of the pandemic is it reasonable to conclude that their recognition of the danger of this disease would take a little longer. And if all of those things are true, then the aggressively autocratic crackdown seems really over the top, given the vanishingly-small prevalence of the disease in a country of 1.4 billion people.

Going back to our original trends of 33%, downshifting to 2%, and with the death and recovery rates I am estimating: I think the actual number of cases in China is more like 10 million, with 465k dead and 7 million recovered. Honestly, it’s hard to explain why their traffic and power usage is recovering so slowly if only 0.006% of the country ever contracted the virus and an even tinier fraction died. The economy should have immediately sprung almost fully back when the quarantine was lifted. Most people in China wouldn’t even know anyone who had been infected…only 1 person in 17,000 ever got the disease. The numbers would just be too small to notice.

We don’t just have to believe China is inherently deceitful…we just need to believe that the country doesn’t have miraculous medical powers. And we need to believe in math. There are other reasons why the numbers could be technically accurate, and yet not illuminating. It might be the case that China simply isn’t testing people very aggressively, so that it is the case that only 81,340 people have tested positive, and only 3,292 of those have died. In that case their numbers would be accurate but not necessarily the whole truth since the country would also be having the small issue of seeing a bunch of other bodies piling up for “unknown” reasons. That inconvenient fact would eventually become hard to not notice, which is one reason why it might make sense to expel external journalists…