China’s Covid ‘Exit Wave’: (2) Is It Over?

• “China’s top leaders said Thursday that the country has achieved “decisive victory” over Covid as its death toll drops sharply. The Politburo Standing Committee said the Communist Party’s judgment, policies and adjustment of Covid controls since November have been “totally right,” according to China’s state television.” – Bloomberg News

A Miracle?

China’s “flash exit from zero-Covid” in December 2022 produced a predictable surge in infection and mortality rates, which in the short term compounded the disruption of the Chinese economy created by the zero-Covid program over the prior two years. But following that “exit wave,” the Chinese government has promoted the narrative that the worst is over. In January, just weeks after lifting the lockdowns, Vice-Premier Liu He proclaimed (at the Davos conclave in Switzerland) that the pandemic had “peaked” and China was “back to normal” or nearly so.

By February, authorities reported that Covid deaths were down to less than 1000 per week – an extraordinarily low weekly mortality rate of 0.0000007% for China as a whole.

Beijing was triumphant:

• “The Politburo Standing Committee said the highly populous nation had ‘created a miracle in human history’ as it had ‘successfully pulled through a pandemic,’ according to a summary published by state-run news agency Xinhua. The summary also said the group claimed that China had kept the lowest Covid-19 fatality rate in the world.” – CNN, Jan 31, 2023

Or Not?

For comparison, the weekly Covid mortality rate in Hong Kong in the first two months after that city lifted its strict lockdown policy – which paralleled the policies in mainland China – was 177 times higher than the reported Chinese result.

There is by now considerable skepticism about the accuracy of official Chinese data. The Economist magazine, which has been a leader in developing epidemiological models of Covid’s spread in China, says simply: “Official statistics are useless.” (We will examine the question of the true mortality numbers in detail in Part 4 of this series of columns.)

Covid Variants

In addition, there is concern among Western experts that the “single-wave” model is probably not a valid picture of Covid’s likely trajectory in China this year. The virus generates new variants very rapidly. Eight notable (i.e., dangerous) variants appeared in 12 months between Sept 2020 and August 2021 (according to The British Medical Journal). Then, in November 2021, Omicron appeared. This aggressive variant has so far spawned at least nine additional “variants of concern” (designated BA.1, BA.5, BQ.1, BQ.1.1, XBB.1.5, BF.7, XBB, BN.1, BF.11, “and others” — according to Yale University). In all, at least 20 major variants have emerged in the past 3 years.

Vaccination Deficiencies

China’s population is functionally unvaccinated (as described in Part 1 of this series).

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As well, Chinese vaccines administered years earlier have proven to be relatively ineffective, and whatever immunity they did impart earlier has now diminished.

Consider the implications of this chart together with the discrepancy between China’s reported mortality rate and Hong Kong’s reported mortality rate (177 times higher, cited above). The drastic loss of immune protection against Omicron – ten times less than Hong Kong’s level of protection, as modeled by the Financial Times – would suggest that China’s mortality rate should actually far surpass Hong Kong’s rate.

What does this imply for the reality of the exit wave(s)?

Some believe that the relative lack of protection in China’s population could delay the development of new variants because there is less pressure on the virus to evolve in order to spread through a weakly protected population. Other experts are less sanguine. Nature magazine pointed to the risk that “as more people in the country acquire some natural immunity from infection [i.e., as they are infected and recover] more widespread immunity could drive the virus SARS-CoV-2 to evolve ways to evade this immune protection.” That would follow the pattern seen elsewhere.

Reinfection

Reinfection of vaccinated or previously infected individuals is now common. Rates of reinfection in other countries range from 5% to 35% over various time periods, and are affected by the type of vaccine used and other demographic characteristics.

In Hong Kong, the closest parallel case, reinfections are growing:

• “The Covid-19 reinfection rate in Hong Kong has increased from 1.5 per cent to 6 per cent over past three months. Experts say the jump was expected because the city’s last large-scale outbreak took place more than six months ago and residents’ antibodies have weakened.” – South China Morning Post (Jan. 4, 2023)

Hong Kong has experienced six Covid waves. Shanghai so far just one. Presumably, the Hong Kong population has developed a more robust level of natural immunity than its mainland counterparts, and yet reinfections are rising. And Hong Kong has the best healthcare system in China. “Among all Chinese cities, Hong Kong has one of the most well-resourced healthcare systems.”

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Even with multiple waves of infection, Hong Kong is still early in its cycle of acquiring natural immunity. Strong Covid quarantine measures only started to relax there a year ago. Brazil is probably the closest large-country model with a longer timeframe of exposure. Like China and Hong Kong, Brazil relied initially on Chinese vaccines (CoronaVac and Sinovac), until follow-up studies showed their ineffectiveness. A Lancet study last year found Omicron reinfection rates in Brazil reached 29%, measured over an 80-day period in Q1 2022.

• “With the emergence of the omicron (B.1.1.529) variant, vaccine effectiveness appears to decay…Compared with those who were unvaccinated without previous infection, the effectiveness of past infection in preventing reinfection during the omicron wave was low.”

Reinfections were also found to be transmissible to others at a significant rate (~30%).

Beijing’s Response

Chinese authorities dismiss these risks, and have mobilized the now-familiar campaign of bluster, stonewall tactics, and disinformation. A recent piece of Chinese propaganda-science claims flatly – based on data from just 413 cases, assembled just two weeks after the lockdown ended – that there are “no new variants in China” and urged that “the world should completely calm down.”

In fact, China has halted the collection of the relevant data. There is no early warning system in place there to detect a new variant if/when one does emerge.

• “China did away with regular testing when it abandoned Covid Zero late last year, creating an information vacuum just as a record outbreak engulfed the population. The country also narrowed its definition of a Covid death, with the small number of officially reported fatalities contrasting with chaotic scenes of overwhelmed hospitals and crematoriums.” – Bloomberg

Even the World Health Organization, which has been slow to criticize Chinese Covid policies, has called for China to resume testing and provide more transparency generally.

Of course China has objected to any such criticism. Instead, Beijing has committed to a sunny-day narrative – “China is Back.” They may well believe it. Beijing likely assumes now – along with some Western observers – that its economic recovery is back on track. Authorities claim that the population is “exuding tremendous vitality and momentum to forge ahead.” Official reports assure us that “the public would agree with the conclusion.” [“Would agree” if they were actually asked, I suppose.]

Caution Warranted

Experience elsewhere would argue that the Chinese Covid episode is not over. New variants are very likely to emerge, relatively unimpeded by the less effective and now out-of-date vaccines used in China. A billion and a half people constitute a huge breeding ground for the virus. Multiple waves are to be expected, and reinfections will likely be significant, putting continuing pressure on the creaky healthcare system. Disruptions will continue. The healthcare system may break down (we’ll look at that problem in Part 5 of this series).

U.S. and European experience with Covid shows a series of waves – and these countries benefit from far more effective vaccines and superior public health infrastructure.

China differs in many ways from Europe and America, but most differences do not increase the probability that the Chinese case would be more benign, especially now that zero-Covid policies have ended completely.

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Given China’s weight in the global economy, the prospect for further Covid disruption there is of general concern. Some observers are counting on a quick recovery in China. The Economist (oddly enough) recently trumpeted the “great reopening” in grandiose style: “This year’s biggest economic event is already under way.”

• “Economic activity is likely to rebound sharply. Increased demand for energy and commodities will be felt around the world. Investors and multinational executives will soon be able to visit offices and factories. The great reconnecting of China with the outside world marks the end of an era: that of the global pandemic.”

Goldman Sachs has declared victory in sync with Beijing. They see a bull market in Chinese equities…

• “China’s reopening from Covid-19 restrictions will not only accelerate the country’s economic recovery, but it will also boost global economic growth, according to Goldman Sachs Research. Due to the faster-than-expected rate of reopening, our economists now forecast China’s GDP to grow by 6.5% in 2023 on a Q4/Q4 basis. On top of that, the reopening—and the recovery of Chinese domestic demand—could raise global GDP by 1% by the end of 2023, …While we already expected China to see a growth rebound from an end to zero-Covid, the more rapid pace of China’s reopening since then…has prompted us to upgrade our expectations further.”

Many others are more cautious. On-the-ground reports by Western journalists (as opposed to the Manhattan tower views) are bleak. In January The New York Times reported…

• “[It’s] a perilous road to recovery…optimism is hard to find in downtown Guangzhou, the commercial hub of southern China. Nearly three years of ‘zero Covid’ measures have crushed businesses. Streets are lined with shuttered stores and workshops. Walls are plastered not with “help wanted” signs, but with notices from entrepreneurs putting their businesses up for sale. Roads and alleys once packed with migrant workers are now mostly empty.”

While many media channels repeated official Chinese forecasts calling for 5% GDP growth this year, the International Monetary Fund caveated its outlook.

• “China’s recovery could stall amid greater-than-expected economic disruptions from current or future waves of COVID-19 infections.”

The 5% official target, it should be noted, is in fact the lowest official growth target that China has issued in decades. The Rhodium Group, a highly respected China consultancy, is far more pessimistic:

• “We conclude that even the best COVID endgame is unlikely to deliver a rosy 2023. While GDP growth above 4.5% may seem reachable at first glance, the more one looks at the assumptions needed to achieve that level of expansion, the less realistic it seems. We believe that growth as low as 0.5% is within the realm of the possible. If Beijing starts crucial, long-deferred structural reforms in earnest, growth between 1-3%, in 2023 and over the medium-term, would be a reasonable expectation.”

Interpreting Chinese official economic numbers requires “calibration.” A 3% “growth” figure is probably equivalent to a Western recession (cf. the bleak Guangzhou picture cited above). A 1% “growth” outcome would probably signify an economic catastrophe.

Even this scenario may be too optimistic. There are important “structural” problems that emerge from China’s particular demographic characteristics, which may make China’s eventual Covid outcomes even worse. We will examine those factors in Part 3 of this series.