China COVID cases are surging

China's economy will benefit from the policy change to abandon ZeroCOVID

China has seen a rapid rise in COVID cases since it ended its ZeroCOVID policy a couple of weeks ago. In short order, the country reported 400,000 cases and over 5,000 deaths. Cases in capital Bejing are reportedly running at 40,000 a day.

For the country as a whole, China reported 37 million cases in one day. With ZeroCOVID now abandoned, the disease should run through the population quite quickly. At a rate of 37 million cases a day, and cases are more likely to accelerate than dwindle, China’ COVID pandemic could be over in two or three months.

Statista reports that only about 18 percent of Chinese citizens are over 60 years of age. That cohort comprises a vulnerable population of about 110 million people. Many of those will avoid infection as they have in every country since the pandemic began.

Worldwide, only about 660 million people have been infected with COVID since the pandemic began. That sounds like a lot but there are 8.8 billion people on Earth and an infection rate of 7.5% would limit infections in China to about 105 million and perhaps 2 to 3 million deaths. That may sound like a lot but with a population of 1.4 billion people, the normal death rate is about 7.18 deaths per thousand people in China, or about 10 million deaths a year.

Fears that abandonment of ZeroCOVID will cause major economic damage in China seem overblown. Contrarily, the policy change is more likely to see a resumption of economic growth albeit at the expense of a somewhat higher death rate in the vulnerable section of the population. COVID infections run their course quite quickly, for most people within a couple of weeks. The headlines will blabber about the terrible statistics for a few reporting cycles and China will motor on and I do not think markets will suffer greatly from the change in COVID policy.

The real risk to financial markets is the stupidity of Western democracies fiscal, monetary and climate policies. Fueled by artificially low interest rates and reckless government spending (which shows no signs of abatement with Biden’s administration just passing another $1.7 trillion spending bill, tossing kerosene on the inflation fire) coupled with inane “climate” policies that pretend CO2 causes global warming, we now see the European economy in general and the United Kingdom in particular close to an economic meltdown. While the Canadian economy is immaterial on a global scale, the Trudeau Liberals are following the same stupid playbook and Canada is not immune from the damage these policies will wreak.

I expect to see recession in North American triggered in part by recession in Europe. Recovery in North America will be faster than Europe since the problems in Europe are deeper and more pervasive, but India, China, and most of South Asia will enjoy a recovery fueled by robust growth in India and China and commodity markets may remain quite tight.

This is a good time to own copper, nickel and oil & gas names and keep them for many years. There may be opportunities to add at materially lower prices in the expected recession so keep some cash on hand. Have a great 2023.