Easily overlooked issues regarding COVID-19

We read a lot in the news about the new Wuhan coronavirus and the illness it causes (COVID-19), but some important points often get left out.

[1] COVID-19 is incredibly contagious.

COVID-19 transmits extremely easily from person to person. Interpersonal contact doesn’t need to be very long; a taxi driver can get the virus from a passenger, for example. The virus may be transmissible even before an infected person develops symptoms. It may also be transmissible for a few days after a person seems to be over the virus; it is possible to get positive virus tests, even after symptoms disappear. Some people may have the disease, but never show symptoms.

[2] The virus likely remains active on inanimate surfaces such as paper, plastic, or metal for many days.

There haven’t been tests on the COVID-19 virus per se, but studies on similar viruses suggest that human pathogens may remain infectious for up to eight days. Some viruses that only infect animals can survive for more than 28 days. China is reported to be destroying paper currency from the hardest hit area, because people do not want to accept money which may have viruses on it. Clearly, surfaces in airplanes, trains and buses may also harbor viruses, long after a passenger with the virus has left, unless they have been thoroughly wiped down with disinfectant.

[3] Given Issues [1] and [2], about the only way to avoid spreading COVID-19 seems to be geographic isolation. 

With all of today’s travel, geographic isolation doesn’t work very well in practice. People need food and medical supplies. They need to keep basic services such as electricity and garbage collection operating. Suppliers of food and other services need to come and leave the area and that tends to spread COVID-19. Also, the longer a geographic area is isolated, the larger the percentage of the people within the area that is likely to get COVID-19. The problem is that the people need to have contact with others in the area for purposes such as buying food, and that tends to spread the disease.

[4] The real story regarding the number of deaths and illnesses seems to be far worse than the story China is telling its own people and the world.

The real story seems to be that the number of deaths is far greater than the number reported–perhaps 10 times as high as being reported. The number of illnesses is also much higher. At one point, facilities doing cremations in the Wuhan area were reported to be doing four to five times the normal number of cremations. Some of the bodies in the Wuhan area now need to be sent to other areas of China because there is not enough local cremation capacity.

China doesn’t dare tell its people how bad the situation really is, for fear of panic. They want to tell a story of being in control and handling the situation well. The news media in the West repeat the stories that the government-controlled publications of China provide, even though they seem to present a much more favorable situation than really seems to be the case.

[5] Our ability to identify who has the new coronavirus is poor.

While there is a test for the coronavirus, it costs hundreds of dollars to administer. Even with this high cost, the results of the tests aren’t very reliable. The test tends to produce many false negatives. The virus may be present somewhere inside the person being tested, but not in the areas touched by swabs of the throat and nose.

[6] Some people get much more severe symptoms from COVID-19 than others.

Most people, perhaps 80% of people, seem to get a fairly light form of the COVID-19 illness. Groups that seem particularly prone to adverse outcomes include the elderly, smokers, those who are obese, and those with high blood pressure, diabetes, or poor immune systems. Males seem to have worse outcomes than females.

Strangely enough, there is speculation that people with East Asian ancestry (Chinese, Japanese, or Vietnamese) may have a higher risk of adverse outcomes than those of European or African ancestry. One of the things that is targeted by the disease is the ACE2 receptor. The 1000 Genome Project studied expected differences in ACE2 receptors among various groups. Based on this analysis, some researchers (in non-peer-reviewed studies, here and here) predict that those of European or African ancestry will tend to get lighter forms of the disease. These findings are contested in another, non-peer-reviewed study.

Bolstering the view that East Asians are more susceptible to viruses that target the ACE2 receptor is the fact that SARS, which also tends to target the ACE2 receptor, tended to stay primarily in China, Hong Kong, Taiwan, and Singapore. While there were cases elsewhere, they tended to have few deaths.

Observational data with respect to COVID-19 is needed to determine whether there truly is a difference in the severity of the illness among different populations.

[7] China has been using geographical quarantine to try to hold down the number of COVID-19 cases. The danger with such a quarantine is that once the economy is down, it is very difficult to come back to the pre-quarantine state.

Data shows that China’s economy is not reopening quickly after the extended New Year holiday finished.

Figure 2. China daily passenger flows, relative to Chinese New Year. Amounts are now down more than 80% and have not increased, even as some businesses are theoretically reopening. Chart by ANZ, copied by WSJ Daily Shot Feb. 17, 2020.

Figure 3. China property transactions, before and after Chinese New Year. Chart by Goldman Sachs. Reprinted by WSJ Daily Shot, Feb. 17, 2020.

All businesses will be adversely affected by a lack of sales if they need to continue to pay overhead expenses. Small and medium-sized businesses will be especially adversely affected. Bloomberg reports that if a shutdown lasts for three months, there is a substantial chance that these businesses will run through their savings and fail. Thus, these businesses may be permanently lost if the economy is down for several months.

Also, restarting after a shut-down is more difficult than it might appear. Take, for example, a mother who wants to go back to work. She will likely need:

  • Public transportation to be operating, so she has a way to get to work;
  • School to be open, so she doesn’t need to worry about her child while she is at work;
  • Masks to be available, so that she and her child can comply with requirements to wear them;
  • Stores providing necessities such as food to be open, or she may be too hungry to work

If anything is missing, the mother is likely not to go back to work. Required masks seem to be a problem right now, but other pieces could be missing as well.

Businesses, too, need a full range of workers to restart their operations. If the inspector doing the final inspection is not available, the business may not really be able to ship finished products, even if most of the workers are back.

[8] A shutdown of as little as three months is likely to be damaging to the world economy.

Multiple things are likely to go wrong:

(a) Commodity prices are likely to fall steeply, because of low demand from China. Oil prices, in particular, are likely to fall steeply, perhaps to $30 to $35 per barrel. Besides cutbacks in oil demand from China, there is the issue of a general reduction in long distance travel, because of fear of traveling with other passengers with COVID-19.

(b) US businesses, such as Apple, will find their supply chains broken. They won’t know when, and if, they can ship products.

(c) Debt defaults are likely to become more common, especially in China. The longer the slowdown/shutdown lasts, the greater the extent to which debt defaults are likely to spread around the world.

(d) The world economy is likely to be pushed into recession, without an easy way to get out again.

[9] The longer the shutdown lasts, the more likely there is to be a major collapse of the Chinese economy. 

In the event of a long-term shutdown, it would seem likely that, at a minimum, a new leader would take over. In fact, there would seem to be a significant chance of major changes within the economy. For example, the provinces of China that are able to restart might attempt to restart, leaving the more damaged areas behind. In such a case, instead of having a single Chinese government to deal with, there might be multiple governmental units to deal with.

Each governmental unit might consist of a few provinces trying to provide services such as they are able, without the benefit of the parts of the economy that are still shut down. Each governmental unit might have its own currency. If this should happen, China will be able to provide far fewer goods and services than it has in the recent past.

[10] Planners everywhere have been guilty of “putting too many eggs in one basket.”

Planners today look for efficiency. For example, placing a large share of the world’s industry in China looks like it is an efficient approach. Unfortunately, we are asking for trouble if the Chinese economy hits a bump in the road. Using just-in-time supply lines looks like a good idea as well, but if a major supplier cannot provide parts for a while, then having inventory on hand would have been a better approach.

If we want systems to be sustainable, they really need a lot of redundancy. Redundant systems are not as efficient, but they are much more likely to be sustainable through difficult times. There is a recent article in Nature that talks about this issue. One of the things it says is,

A system with a single cycle is the most unstable because the deletion of any cycle-node or link breaks the sustaining feedback mechanism.

“A system with a single cycle” is basically similar to “putting all of our eggs in one basket.” “Deletion of any cycle-node or link” is something like China running into coronavirus problems. We probably need a world economy that consists of many nearly separate local economies to be certain of long-term world economy stability. Alternatively, we need a great deal of redundancy built into our systems. For example, we need large inventories to work around the possibility of missing contributions from one country, in the case of a problem such as a major epidemic.

Conclusion

The world economy may become very different, simply because of COVID-19. The new virus doesn’t even need to directly affect the rest of the world very much to create a problem. The United States, Europe, and the rest of the world are very much dependent on the continued operation of China. The world economy has effectively put way too many eggs in one basket, and this basket is now not functioning as expected.

If China is barely producing anything for world markets, the rest of the world will suddenly discover that long supply chains weren’t such a good idea. There will be a big scramble to try to fill in the missing pieces of supply chains, but many goods are likely to be less available. We may discover quickly how much we depend upon China for everything from shoes to automobiles to furniture to electronics. World carbon dioxide emissions are likely to fall dramatically because of China’s problems, but will the accompanying issues be ones that the world economy can tolerate?

The thing that is ironic is that it is possible that the West’s fear of the new coronavirus may be overblown–we really won’t know what the impact will be with respect to people of European or of African descent until we have had a better chance to examine how the virus affects different populations. The next few weeks and months are likely to be quite instructive. For example, how will the Americans and Australians who caught COVID-19 on the cruise ships fare? What will the health outcomes be of non-Asians being brought back from Wuhan to their native countries on special planes?

 

This entry was posted in Financial Implications and tagged , , , , by Gail Tverberg. Bookmark the permalink.

About Gail Tverberg

My name is Gail Tverberg. I am an actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change. Oil limits look very different from what most expect, with high prices leading to recession, and low prices leading to financial problems for oil producers and for oil exporting countries. We are really dealing with a physics problem that affects many parts of the economy at once, including wages and the financial system. I try to look at the overall problem.

2,589 thoughts on “Easily overlooked issues regarding COVID-19

  1. https://www.worldometers.info/coronavirus/

    Sweden!!!!!!! 2 cases then 7 yesterday and now 11…

    Singapore!!!!!!! 96 cases yesterday and now 98…

    Iran 388 cases and 34 deaths, so the death rate of 9% is getting closer to reality…

    Italy (northern) is now obviously THE main node for transmission to the rest of Europe…

    it’s not in the above link but CA is looking very likely to become the main node for transmission throughout the continental USA…

    many big cities with major airports will be candidates for becoming secondary nodes…

    • 3 new cases in the United States:
      – 1 in Washington State: a 18-year-old student from Jackson High School in Mill Creek with no travel history to an outbreak area who started feeling ill on Monday Feb. 24 with body aches, chills and a headache. After feeling better, he returned to school, before test results came out on Friday reveal. The school will be closed for a few days of deep disinfecting.
      – 1 in Washington State: a woman in her 50s with confirmed travel to Daegu, South Korea.
      – 1 in Oregon

      “After feeling better, he returned to school…”

      “… few days of deep disinfecting.”

      how are they going to disinfect all of the other students and the teachers?

      somehow, I suspect that student and the woman crossed paths in Washington… or worse, transmission from the woman to other person(s) then to the student…

  2. A little more to consider, interview with Peter Piot,

    “Peter Karel, Baron Piot, KCMG, FRCP, FMedSci is a Belgian microbiologist known for his research into Ebola and AIDS. After helping discover the Ebola virus in 1976 and leading efforts to contain the first-ever recorded Ebola epidemic that same year, Piot became a pioneering researcher into AIDS.” He seems a responsible source and gives some glimpses into possible future scenarios.

    https://www.zerohedge.com/geopolitical/serious-virus-hunter-who-discovered-ebola-discusses-worst-case-scenario-coronavirus

    ZeroHedge seems to be doing some responsible research in this area, some of the headlines are to grab eyeballs, but they reference well as far as I can see. I chased it down to the FT paywall and it seems real. I don’t have time to read the times anymore, paper was good exercise bike material in the days when it could be obtained in printed form in the US, neat peach color.

    https://www.ft.com/content/de0a7c9e-56ff-11ea-a528-dd0f971febbc

    Seems Gail may be right again, the damage will be economic. Piot speeks well of WHO.

    Dennis L.

    • What’s the worst-case scenario with coronavirus, I ask. “That we’ll have a pandemic,” he replies. “I think it will get much worse in China. And here we will see more and more transmission. That’s my gut feeling. But how big it’s going to be, I honestly don’t know.”

      • As Nicole Foss used to suggest, what we’re facing is a predicament, not a problem. Our best hope is to find the least-worst outcome…

        Cheers,
        -GBV

  3. “Global stock markets have lost $6 trillion in value in six days. The coronavirus-driven market sell-off has wiped out $6 trillion in value from the global markets in the past six days, according to S&P Dow Jones Indices.”

    -6T in 6 days. That’s fast folks and this virus is just beginning to ramp up. I got the above information from a Google search after reading a similar article’s headline, but was unable to open the article because of membership requirements.

      • “but not mortal accident yet”

        Right, and not suggesting it is, but it does show just how fast the situation can decline. The situation as far as the stock market may even settle down next week, as futures are showing green for the next trading day, Monday. But, if this past week is any indication of what can happen, just wait until the virus is circulating in all 50 states and the medical financial toll for people is rising. Many people can’t even afford 3 days in a hospital.

        It’s a stat that last year in the US, 950,000 families went bankrupt from medical bills. The total number that went bankrupt on medical bills in Europe and Canada in 2019 was zero, zilch, nada. So what will happen to families as this virus gets going in the US? Won’t be good, that’s for sure, and what about their 401k’s or IRA’s from a descending stock market?

        • I’m not trying to lower your correct urgency call, however if it evolves into pandemics in other major industrial hub countries, it will be dealt with as national emergency, so don’t worry about medical bills.. Instead you should worry about many “doctors” (Ferrari collectors) refusing to show up on the job, gov-mil quarantine make shift centers (ala China) etc. The money won’t be the primary concern for the time of the outbreak, simply we have been sailing so far off track for many decades, that from now on it’s only MMT/QE and UBI like policies ahead..

          Yes, it won’t work for ever the system would likely crash in lower complexity afterwards.

        • It is being said on the internet that if the Central Banks dont do anything on Sunday, we may have passed the tipping point. Margin calls anyone?

  4. I found an interesting stat for Thailand Corona Virus cases. If you go to 7:45 on that Martenson video link, he’s talking about how Thailand’s case count has not been changing much. He then shows a graph for Thailand’s ‘Viral Pneumonia’ cases at 2,500!!! So apparently they aren’t counting those cases as being Corona virus. Interesting angle on not scaring the populace.

    • That is interesting. I have been wondering about Thailand. I’m sure their economic reliance on tourism must be making them wary of releasing accurate/legitimate data.

      Likewise Indonesia and Bali in particular. I’m very sceptical indeed that Indonesia has zero infections.

  5. Unnerving to think that this is as good as China could make the data look:

    “The official manufacturing PMI in February was 35.7, worse than the lowest reached previously during the global financial crisis during 2008-2009 when the PMI was in the range of 38.8 – 45.3, and it is the worst in history since the data has been compiled.

    “Sub-indices show weakness not only in production, which was an astonishingly weak 27.8 but also in orders. Export orders were 28.7 and new orders, which represent domestic orders, were 29.3. Covid-19 has not only stopped production but has also broken the supply chain of production, which explains the very low PMI, export orders and new export orders.

    “Non-manufacturing was if anything even worse, with the official PMI index dropping to 29.6, and the composite index coming in at 28.9. Altogether, an eye-watering set of weak numbers.”

    https://www.google.com/amp/s/think.ing.com/amp/snap/china-manufacturing-pmi-will-shock-the-market-on-monday/

    • A silver lining after all! I would say, though, that it depends on the grasp of technique: all French-kissers are not equal!

      The best I have encountered was, to my surprise, Iranian – I think we can say that’s off the list for a good while now! Aren’t plagues just a bore? 🙂

      PS In Teheran there is not much to do other than get drunk on home-made vodka, take drugs and party at home – so we could add that authoritarian theocratic tyrannies may also tend to encourage French-kissing.

        • Some fine technique there from our short and hairy cousin! Good find.

          Take tips everyone, it might be useful in lock-down’ situations – spread the love like a bonobo….. 🙂

        • It is also staggering how little economists have understood about the dependency. Their assumption has always been that a little higher price will find substitutes or reduce demand. The system can simply “break.”

          • Gail, Classical economics built its production models using Say’s Law: supply creates its own demand. As, for example, hula hoops created a demand for hula hoops, and silk from China created demand for more silk. It was Keynes (of course) that inverted this proposition, and said that demand creates supply, as in, a demand for drugs creates drug gangs, drug runners, and basement factories.

            So in the world of Modern Monetary Theory, if you feel the economy needs unicorns, you offer a bounty on unicorns, and the hunters will oblige. Or if you feel a need for shale oil, a couple of trillion dollars will be squandered on shale oil companies that can never make a profit. It is not surprising that he was wrong: most of have been wrong at times. What surprises me is that people still believe a theory that has failed everywhere it has been applied.

            • Robert, I am not an economist and this is only a guess.
              Shale oil can be used to plant crops which need farm machinery. Crops are stored in bins, etc. This is from what I am seeing is the multiplier effect, each step has lower and lower energy, but there is retained energy for the next step as compared to manufacturing a bunch of fireworks for a celebration. Some one is not going to get the resources that were used in extraction, but the economy will live another year if only stored crops, the farm equipment will have other embedded energy, perhaps even some of the shale oil itself. Most likely it has a much smaller multiplier due to cost than does conventional oil. If shale oil cannibalizes activities with low multipliers or even allows some with high multipliers problems might not appear for a while. As we age, awhile is not as long as it used to be.

              Keynes seems more about rate than anything else, there is a natural rate of growth and debt can speed up that rate if need be until energy sources go to equilibrium then there is zero surplus and indeed maybe negative surplus secondary to pollution which remains indefinitely. Economics seems in essence finding ways to employ surplus non agricultural energy at a rate greater than its cost/unit time and at a rate favorable to human life cycles. Age slowly enough and it is conceivable to create natural oil from sunlight, etc., the trick is to age very slowly. Speeding up the process of oil formation has to date proved to be a difficult problem, slowing down aging hasn’t met with much success either.

              Keynes worked from the end the 1930’s until well into the 1970’s, say forty years, longer than the 30 years war.

              Dennis L.

      • Clearly these are our last two weeks or so of being able to buy stuff: I’m now stocked up with 2 years of materials (sourced globally) – an nice little bump in sales for my suppliers before reality hits.

      • Based on the link, the Barrons article expects that tech and apparel profits will be hardest hit. The article is clearly looking at retailers shelves, not things like airlines profits, oil company profits, and tourism profits. I doubt automobiles would be in their list of goods sold by retailers.

        Does anyone have a subscription to see what else they expect to be hardest hit?

        I know toys tend to be made in China. The silly “party goods” we see in stores are likely made in China.

        I would expect rechargeable batteries of all sizes, including the large size used in vehicles and for smoothing intermittent electricity, would be hit.

        • “Among individual companies, Apple (ticker: AAPL) and Microsoft (MSFT) warned investorsin February that they would miss sales estimates because of supply-chain problems, but didn’t put numbers on the impact. Expect more such warnings in coming weeks.

          “In the last two decades, China became the factory of the world,” says Girish Rishi, CEO of supply-chain software provider and consultant Blue Yonder. “Consumer packaged goods, automotive, apparel, high-tech. I can’t tell you which sector is not getting impacted.”

          “That is particularly true now that the virus has spread to other major manufacturing hubs such as South Korea, and Japan, and is starting to move through Europe. China, South Korea, and Japan together account for more than a quarter of U.S. imports—and more than half of American imports of computer and electronics products…

          “…the industries most affected would include travel and tourism providers, and consumer companies selling into China. Shares of the two U.S. companies with the most direct exposure to China as a percentage of sales— Yum China Holdings (YUMC) and Wynn Resorts (WYNN)—have fallen more sharply than the broader market.

          “Oil companies are reeling, too, because China is the world’s largest petroleum importer. Crude has fallen more than 20% since the start of the year.

          “Consumers, who account for 70% of U.S. economic activity, might not see the impact of supply-chain disruptions immediately. Instead, inventory shortages would start to show up in company sales. “If your sales are slipping, you’re going to be more reluctant to bring on new workers,” Wells Fargo economist Sarah House says.

          “An earnings shortfall might also hit balance sheets. “We’ve seen the financial position of the corporate sector deteriorate over the past couple of years,” she says. “Interest coverage on debt has been eroding. A potential shock to earnings could influence their ability to cover that interest expense.”

          “More than a dozen companies in myriad industries—from technology to toothpaste, agriculture, and toys — have told investors that the coronavirus is disrupting their supply chains. Some have said they are expecting an impact on earnings, but few have quantified that. “Trying to size perfectly the coronavirus impact at this point is incredibly difficult,” CEO Corie Barry said on Best Buy’s (BBY) fourth-quarter earnings call Thursday.

          “The impact on earnings could vary widely by sector. “Where industries are more balanced in their global footprint for suppliers and manufacturing, they have options,” Rishi says.

          “The auto industry is relatively insulated from supply disruption, for instance, because several companies have built regional factories to serve local markets, he noted. “My concern right now is really for consumer packaged-goods companies and retailers who have a higher concentration of goods coming from China,” he says.”

          https://www.barrons.com/articles/tech-apparel-profits-could-be-hardest-hit-by-supply-chain-shocks-51582938634

        • For apparel I doubt there will be any significant %sales% on the sub segment of lower volume yet quality stuff like goretex or other vapor membrane outdoorsy stuff or the wool made products either etc. so why bother about the basic plastic crap.

          In terms of rechargeable batts, true there is a noticeable pick up of sales lately, but since these are Japanese made (the quality brands) I guess the flow will continue uninterrupted for a bit longer. But for the larger batt packs aimed at island home storage yes that’s over, they are mostly made in China and the previously achieved price/quality level doesn’t have to return ever, which is a bummer.

          New unsold cars just sitting-hiding on large private parking spaces and unused airfields – well that could happen again, but there could be also new incentives in play ala cash for clunkers ver_xy and so on..

          • I have a couple of woollen jerseys and jackets made in China. Shoes made in China. This smartphone was made in China. The pillows I rest my head on were made in China. My vacuum cleaner was made in China. Air freshener – China. My backpack was made in China. Battery charger made in China. Can opener (which broke) made in China. Coffee mug made in China. I can go on and on. Sure, there will be other countries producing these items, but are they able to produce enough to make up the shortfall from China’s shutdown? How many manufacturers in other countries rely upon Chinese suppliers and how long will it take to find or start up replacement suppliers? Will the replacements be sufficiently affordable and reliable? Plus, what will be the effect on otherwise struggling economies elsewhere when not only China but, to an increasing degree, other economies are slowing or even shutting down?

            This whole corona virus situation gives us a taste of what we can expect when the global system collapses due to energy and other resources issues.

          • That’s all very true, it depends on your local situation, and as you say even if your product-factory remains state side, some of their parts or inputs are JIT China in the final analysis. Nevertheless, if possible I deliberately try to buy local for past ~two decades; cotton/underwear as well woolen stuff or blanket sheet, shoes. .. are still made in Europe.. Eventually all these production lines might go down from the wider supply chain issues (or demand/credit implosion) as well, but at least providing a small buffer for now.. in comparison to some other regions/countries (N America) more deeply and rapidly sucked into that China-direct model..

  6. Entropy all around. Everything decays. But still I await the black swan. There’s a white swan in this video, though.

      • Just think of all this entropy slowing the system, scaring the tourists and literally stopping the traffic. I’m sure Greta Thunberg’s magic elves are behind all this. They given her exactly what she wanted.

        • And that doomer of all doomers, who is looking more right by the year, discusses what happens to the ‘dimming’ phenomenon if more work stops and those helpful shielding particles begin to fall out of the air.

          • In six to eight months the data from this global experiment will begin to come in.

            It is a heck of an experiment which could well have resulted from one or two people seeking fame and glory doing virology in a never before widely known small lab on the Asian continent. Truly the flapping of a butterfly’s wings causing a hurricaine.

            There can’t be enough data mining in the world to predict that one.

            Dennis L.

            • ‘Truly the flapping of a butterfly’s wings causing a hurricane.’

              So it was a butterfly that did it. Then the hunt must be on to catch this rogue butterfly. And we will succeed too. By gad, we’ll have the forces of nature on their knees, just mark my words! And one day a film will be made about it. All we need to do is wait. 🙂

            • Dimming! I’d forgotten all about that when with this developing viral situation. Over time as flights decrease, this certainly will become a valid test for how much dimming contributes to increasing C.

          • Increased temperatures due to a decline in global dimming may not be the worst thing to happen. Many who don’t buy into the garbage IPCC global warming “settled science” BS are more concerned with global cooling (and the resulting crash in global agriculture) over the next decade… so a little extra heat might help to balance things out?

            Cheers,
            -GBV

          • Thanks for the video link, Malcopian. I was already aware of the likely rising temperature consequence of a dramatic drop in sulphur dioxide emissions, but must admit that I had not considered that aspect of the current Chinese industrial shut down even though I was aware that it was something of concern for what I thought would be later.

  7. Let me tell you something from someone who worked in China. I am staying in South East Asia.My classmate worked in a large seaside city in the frozen seafood industry. Her spouse is mainland Chinese. They were back during this Chinese New Year but they could not return because most of the flights were cancelled and there is no urgency to return. Here are some of interesting points to note. He is working from home.

    1. His company has around 100 people and most of them are not locals. They went back to for Chinese New Year.
    2. They could not come back and he said that his company is one of the best at around 30% of the workers coming back. Some of the companies will only open next week. Most of them are at <30%.
    3. Due to bureaucracy and the fact that party leaders are responsible, if any of the returning workers have the virus infection, the party leader (at the residence of the work) will be fired and possibly penalized. Not on the leader but the secretary and some of the top hierarchy. Therefore, there is no incentive to allow the workers to return to work in faraway places.
    4. The corruption (“signed health certificate”), bureaucracy is stopping workers from returning. Some of them are not interested to return but most of them are but it is not possible to do so
    5. There is NO solution to “workers going back to work” because it is a human problem and people are not going to take risks of the lucrative positions. China is just too large to micromanage.
    6. They face a problem – they are very short of plastic bags (to package the frozen seafood) and may face a shutdown if their supplier cannot supply.

    For those who do not know who I am (I was with OFW since it started but I rarely post), I know the supply chain and the strongest link is weakest link. You can infer from my example

    1. Just a simple plastic bag can cripple a company. He can source from other companies but it may take too long a time, other suppliers are not ready, cannot meet his requirements or may not have the capacity.
    2. Imagine you have other things that can go wrong or in short supply – the seafood (Because the ship cannot go out), salt, preservatives, refrigeration, strapping and sealing equipment, etc.
    3. The plastic bag supplier may have an issue with the machine and the part that is spoilt may be sourced from a factory that is far from his company and that company is still shutdown.
    4. Each supplier is so dependent on other suppliers and just one supplier who cannot supply will throw everything out of whack.

    Today, this article https://www.zerohedge.com/economics/china-reports-catastrophic-data-manufacturing-non-mfg-pmis-crash-record-lows noted that the PMIs for China is very low. I don’t believe this number. It has to be lower (according to my friend). With a 80%+ drop in car sales, it has to be lower. With the usage of electricity and traffic so low, it has to be untrue.

    From what I understand, it is just not possible for every single cog of the supply chain to be running smoothly by end of March. Some of the smaller companies may have gone bankrupt.
    The 30% who came back to work does not translate to 30% output. If the manufacturing is complex, the 30% who came back may fill only one department or it is just too few people to produce the end product (i.e. you have 5 sections and each section requires 5 people to work on it. What if you have only people who are skilled in only 2 sections and the other 3 are empty?)

    In other words, sad to say that the supply chain is definitely broken and that is not good news at all. The virus itself is not very lethal (only to those with pre-existing conditions) but the supply chain is really broken. The “financial glue” that binds the entire system in China is also broken. Hubei is still under lockdown. What if that part is only manufactured in Wuhan?

    Air travel will not be curtailed or stopped until it is too late. I don’t think the top people are clueless. They know that if it is stopped, “that is it”. Everything ends. I think the CDC is not incompetent but if they do start to do mass testing, it will show that many are infected. I have read somewhere (trawled through all the comments in 4Chan, ZH, etc) and picking up treasures among the pile of droppings, you can piece together a picture of people clearing the shelves of supermarkets and people who has relatives working in hospitals saying that they say that infection may be widespread.

    With the supply chain broken where China cannot support the goods flowing out to every country in the world and the fact that people are panic buying, I hope that FE had a good time somewhere on planet earth. I think within 2 months, this whole thing may just come to an end.

Comments are closed.