Today is a down day in Asia. Down for stocks and down for the mood, with news of the death of "whistleblower" doctor Li Wenliang.
The entire episode encapsulates the problems with China's approach to leadership. And it demonstrates why investors should be very circumspect about shares in greater China, indeed Asia. This week's relief rally after Monday's selloff makes little sense amid an escalating crisis that is far from contained.
Even the announcement of Li's death was a fiasco.
I got an alert on my phone late Thursday night, first from The Guardian newspaper, who had seen it first reported on the state-owned Global Times, which Beijing uses to promote its foreign-policy agenda. It is pretty reliable, coming from the party's own mouthpiece. Then I got an alert that the Wuhan Central Hospital denied he had died. Then, this morning, the hospital announced he had died, at 2:58 a.m.
We have got used to living in a Trumpian "post-truth" world. Was Dr. Li's very existence some kind of Schrödinger's cat thought experiment? At some point, he was very precisely dead. Two of his colleagues first broke the news in social media. Why the hospital retracted that, saying he was in "critical condition," and then confirmed it, I have no idea.
But faced with a deadly outbreak and government figures of its extent that nobody believes, the Chinese people are getting increasingly angry at the lack of accurate information they receive. A root problem is that Communist Party officials up and down the leadership chain are trying to shape the narrative, to control the spread of information as much as the virus.
Li was one of eight people, half of them doctors, who tried in December to warn people about the WARS outbreak in Wuhan. In his case, he alerted a circle of his medical-school classmates to the disease on a private WeChat group. He was, basically, arrested for his troubles and forced into a confession that he had been "making false comments," and would stop. If he did not cease "sharing false information," he would be "brought to justice."
The official nationwide media condemned these reprobate rumor-mongers. "Cyberspace is by no means a lawless frontier, the police have zero tolerance for any illegal acts of fabricating or spreading rumors that disrupt social order," state broadcaster CCTV said. Only after Hong Kong media broke the outbreak news more widely did proper coverage begin.
We now know it was vitally important, quite literally, to alert people quicker to Wuhan Acute Respiratory Syndrome. Li, despite being an eye doctor, was witnessing its onset first-hand. But the Chinese Communist Party values social stability above individual rights, and does its best to control "truth." It couldn't be an outbreak until they decided it was.
The Western financial crisis laid bare the issues surrounding free-fettered capitalism. The rise of populist demagogues reveals the downside of democracy. And the coronavirus outbreak demonstrates the problem with the Communist, controlling method of management.
There are two problems at work; one is that the Chinese Communist Party has a top-down style of leadership, in which information is relayed up to the top of the tree, a decision made, then handed back down. This is time-consuming and hampers innovation. It is also not unusual in Asian companies. Often, underlings are wary of reporting bad news; nobody openly criticizes their superiors.
Take President Xi Jinping's response. He had a meeting of the Standing Committee of the Political Bureau of the Communist Party of China's Central Committee. He's the general secretary of that committee within the committee. They formed a leading group; made further study; sent other groups to Hubei Province.
Xi ordered Communist Party "committees and governments at all levels" to treat this outbreak as the top priority of their work. Xinhua says he told the Committee's Committee meeting that he has "held multiple meetings, heard many reports and made important instructions on the matter."
He also issued a command, virtually to the virus, to stop. Unfortunately viruses don't listen.
"When an epidemic breaks out, a command is issued. It is our responsibility to prevent and control it," Xi said.
Is he talking about the virus, or information about the virus? The other problem is more specific to authoritarian governments.
China wants to control what information is shared online. It is surprisingly successful, thanks to the help of private-sector Internet operators. Criticism of the Chinese Communist Party is censored. Anything can be a "rumor" until the party decides it's true. This is a party brought to power by revolution, sustained by command, not votes.
Incidentally, the Global Times now lays blame for Li's arrest at the door of "local police" and incompetent "local authorities." But it has erased its own story trumpeting that the police (not "local" at that point) had arrested eight people for "spreading rumors" in Wuhan. The eight were "released shortly," in its now-revised history. The publication quotes an epidemiologist who gives them a back-handed compliment that they should be highly regarded even though the information they shared "lacked scientific evidence."
Tragically, it appears Dr. Li, who went back to work on January 3 after his release, believed the early information he was told that the disease couldn't be spread from person to person. Then a week later he got a cough.
"I was feverish on January 11 and was hospitalized the next day. Back then, the government still insisted that there was no human-to-human transmission, and said none of the medical staff had been infected. I was just confused," he said on Weibo, China's Twitter (TWTR) , on January 31.
Be wary about the official infection rates out of China, although they're what we have to work with. If you work out the death rate from WARS given each day, and the number of cases, it is 2.1%. But it has been 2.1% since Jan. 30. Every single day.
Much like China's economy always matches Communist Party "forecasts," the WARS death numbers are remarkably consistent. That may be the actual death and infection rate. It is more than likely massaged. Even without overt interference in the body count, many people are being sent away from hospitals without testing, due to lack of resources. Plus, the authorities often ordered the immediate cremation of bodies early in the outbreak, without doing any tests.
This makes it very hard for investors to get a handle on what's going on with the disease. The good news is that, even though there have been incidents of local transmission here in Hong Kong, as well as Germany, Japan, Vietnam and the United States, these have generally been small scale, except for an ongoing crisis on a cruise ship in Japan.
For each of the last two days, the number of official new infections in China has been lower than new cases reported the previous day. So we are yet to see the much-feared exponential growth that a pandemic would provide. Yet more than 3,000 people catch it every day (3,143 new cases reported Friday), and total cases have shot past 30,000 (31,161 as of Friday).
Economists are struggling to estimate the economic effect because the crisis is still escalating. The fact (yes, it is one) that Hyundai Motor (HYMTF) has had to suspend production in Korea should make us sit back and marvel at the interconnectedness of the world economy, how influential China's part in it is and how the spillover effect still has far to go. SARS, 17 years ago, isn't that useful of a comparison.
Asian automakers and airlines, Macau casinos, Chinese real-estate stocks, anyone in tourism and increasingly in trade are directly exposed to the current crisis. Manufacturers are starting to reflect the supply-chain disruption, which will continue to ripple in unexpected directions.
Mainland shares were down 1.3% in early-afternoon trade on Friday. They have closed flat, in fact slightly in the green -- the only East Asian stocks to gain today, a rally that again makes little sense. Thanks to Monday's decline, which was only halted by circuit breakers stopping shares from falling more than 10%, they ended down 3.4% for the week.
Here in Hong Kong, the Hang Seng index fell 0.3% on Friday. Tokyo stocks, in the form of the Topix, were also down 0.3%. Singapore suffered the heaviest selling, the Straits Times down 1.6% after its biggest bank, DBS, cut its 2020 growth forecast for the Lion City to 0.9% from 1.45%.
"I'm a little surprised at the way European and U.S. investors have shrugged this off," Michael McCarthy, Sydney-based chief markets strategist at the derivatives brokerage CMC Markets, told Reuters. "I think the reaction in the Asia-Pacific region is much more reasonable. There is real uncertainty."