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Whether COVID-19 was accidentally released from a biological warfare laboratory in Wuhan or not, what seems to be established is that the deadly virus first appeared in China’s Hubei province in December 2020.

It is also clear that Donald Trump has chosen to point fingers at China as being responsible for the spreading of the virus, promoting with Mike Pompeo the politically-charged story according to which the mysterious coronavirus that has killed more than a quarter-million people worldwide likely escaped from the Wuhan Institute of Virology.

What is also clear is that, regardless of whether the reported data on health infections and fatalities in China is accurate, the massive lockdown measures imposed by the Chinese Government to prevent its spreading in February took a heavy toll on the Chinese economy, causing it to experience the most severe economic contraction since the cultural revolution.

On a quarter to quarter basis, Chinas’ GDP contracted by -9.8 % while on a yearly basis, the contraction shaved off -6.8 % of its US$ 14 trillion economy, or $ 952 billion, or the equivalent of the entire GDP of the Netherlands.

In fact, to date, this is the most severe contraction of all economies in Q1 2020 as the full impact of the virus really took place in the first quarter of 2020 in China, while the rest of the world will see the full impact on their economies in Q2 2020.

But by April 2020, the lockdown measures have been broadly lifted in China and Chinese economy is on the path to a slow recovery.

China’s 1Q GDP growth fell sharply to a record low of – 6.8% y/y due to business stoppages and the nationwide travel ban to contain the spread of COVID-19. High-frequency indicators remained about 10% below 2019 levels as of end-March but there are numerous signs enabling to expect GDP growth to recover gradually in Q2 thanks to pent-up demand and stronger policy support, despite continual external headwinds.

Maybe one the most telling number to illustrate the reality of the recovery is the number of vehicles sold in China in April 2020 which surpassed 2 million, registering a year-on-year increase over the same month of 2019, after having fallen by -81 % in February 2020.

Fixed Asset Investment growth improved in March, driven by infrastructure and property. For the whole 1st quarter, fixed-asset investment fell by 16.1% y/y, following the 24.5% drop in Jan-Feb, suggesting a meaningful rebound in March.

The improvement in March was led by property and infrastructure, whose contraction narrowed to –7.7% y/y and –19.7% y/y, respectively, from –16.3% y/y and –30.3% y/y in Jan–Feb.

In particular, infrastructure investment is expected to be the main growth driver from 2Q, buoyed by greater funding support from larger special local government bond issuance. CNY 1.08 trillion of special LGBs have been issued in Q1 to fund infrastructure projects, and the full-year quota could reach at least CNY 3 trillion a 50 % increase when compared to the CNY 2 trillion of issuance in 2019.

March retail sales rose less than FAI and industrial production, The contraction only narrowed slightly to –15.8% y/y from –20.5% in Jan–Feb. The main drags were auto and major consumer discretionary items, which shrank by 20–30% y/y. On the other hand, sales of consumer staples, medicine and communication devices all rose.

Online sales were down just 0.8% y/y from –3% y/ y in Jan–Feb, illustrating the shift from brick and mortar to online sales.

Consumer staples should continue to outperform discretionary in the coming months, given weaker household income, –3.9% y/y in real terms in 1Q20, and the slow recovery of consumer confidence amid prolonged soft social distancing measures.

Exports and imports recorded relatively limited declines in 1Q, and the trade surplus jumped back to 199 Billion CNY in March after two months of minor contractions.

China’s trade surplus widened again to CNY 453.4 billion in April 2020 from CNY 130 billion in the same month the previous year and far above market expectations of a CNY 97 billion surplus. Exports unexpectedly rose for the first time in four months while imports posted the biggest drop in over four years.

Nonetheless, in the near term, the recovery in exports will face external challenges.
With lockdowns being imposed in developed economies from mid-March, a deep contraction in exports in the remainder of Q2 is to be expected. Anecdotal news and the latest sectoral surveys suggest that exporters in key manufacturing-oriented regions have seen substantial order cancellations from the EU and US.

Economic activity showed further signs of returning to normal in April.

The work resumption rate of industrial companies with more CNY 20mn annual revenue and SMEs in the manufacturing sector improved further to 99% and 84%, respectively, as of 14 April (from 98% and 77% as of end-March), according to MIIT.

Coal consumption remained at about 90% of last year’s levels by end-April, similar to a month ago.

Intercity travel restrictions have been further lifted since April with the national health code system in place, after Wuhan’s lockdown was removed from 8 April. Schools are also resuming at a gradual pace.

Workday traffic in major industrial cities returned to slightly above 100% of 2019’s level as of end-April (vs. near 90% at end-March).

On the consumption front, the recovery is e=uneven.

Property transactions and auto sales have both rebounded notably since late March, currently at 100%+ and 80%+, respectively, of 2019’s levels by end-April, up from about 91% and 42% a month ago.

On the other hand, strict quarantine measures have remained in place for inbound arrivals to mitigate the risk of a second wave of infections from imported cases, suggesting sectors such as airlines and tourism will take longer to recover.

Government Policy support

At the Politburo and State Council meetings held on 27 and 31 March, policymakers enacted more policy easing efforts to support the recovery.

Monetary and fiscal support has been ramped up and details on growth targets and further measures will likely be unveiled at the much-anticipated sessions scheduled to start on May 21.

Monetary policy has been guided to lower market lending rates. The People’s Bank of China has cut the targeted RRR by 150–200bps, releasing CNY 950 Bln of liquidity since February, to encourage bank lending to SMEs.

The PBOC benchmark rate has been reduced by 30 bps year to date to reduce corporates’ funding costs. Re-lending and re-discount quotas have been added in phases, with an accumulated amount at CNY 1.8 trillion, to support SMEs’ financing activities.

Credit growth jumped to 11.5% y/y in March from 10.7% y/y in the previous four months thanks to policy easing. It is likely that another 100–300bps of RRR cuts and another cut of 10–40 bps in the benchmark rate will take hold for the rest of the year.

As a result of the monetary stimulus measures, Credit growth already jumped in March.


On the fiscal side, an estimated CNY 7–8tr of stimulus package measures have been announced or proposed, equivalent to 7–8% of GDP.

The package primarily includes special treasury bonds, local government bonds to boost  infrastructure, fiscal subsidies for the affected sectors and SMEs, as well as consumption coupons released by local governments.

China’s tradition of gradual moves in Government policies has been vindicated again and the stimulative measures taken in 2020 to counter the deflationary impact of COVID-19 are summarised below :

Financial Markets

Contrary to what happened in the rest of the world, the Chinese equity markets proved to be far more resilient and less volatile than their Asian or Western counterparts.

At the worst of the panic in March 2020, the domestic CSI300 index only lost -16 % peak-to-trough – against -35.5 % for the US Dow Jones and has since recovered to trade at levels it was trading at in the 4th quarter of 2019.

Industrial profits declined by 31 % in Q1 2020 but should be on a strong recovery path as the economy normalizes in the second quarter of 2020.

Granted, contrary to its US counterpart, Chinese equities are neither overvalued nor hyped and the long term chart seems to indicate that COVID-19 will only be a blip in the march of Chinese equities towards a structural and secular bull market that has been in the making since 2015 with a long term compression triangle.

A confirmed break of the 4’250 level will signal the beginning of this secular advance, probably sometimes in the summer of 2020

Hong Kong-listed Chinese H-Shares

Chinese H-shares have constantly been trading at a hefty discount fr0m their Domestic counterparts trading at 8.1 x earnings against 14.82 x for the CSI300.

Chinese H-shares are more prone to volatility due to the prominent presence of foreign investors and the index lost 25 % in the March downdraft. It has since recovered 50 % of the decline and is rolling over while still being inscribed in the downward channel in place since 2018.

A higher low has to be recorded to start investing safely in the Index, but many individual stocks are already sending BUY signals

Longer-term, the HSCEI index has rebounded on both a long term support level dating back to 2009 and the rising wedge of a massive consolidation triangle that will end in 2020.

The COVID 19 correction may not be over yet and another test of the lower boundary is a possibility, although the downside will remain limited.


ChiNext is a NASDAQ-style subsidiary of the Shenzhen Stock Exchange which started trading on October 30, 2009. It offers a platform for the needs of enterprises engaged in innovation and high growth ventures.

The Chinext Index comprises of the 100 largest and most liquid A-share stocks listed and trading on the Chinext Board of the Shenzhen Stock

At the 31st of December 2019, its main constituents were as follows :

Like all growth enterprises, valuations are high with a current PE ratio of 61x and a forward P/E ratio of 31x.

Despite the March correction, the CHI next index remained well contained in its uptrend and has recovered significantly in April, with a +10.88 % gain.

The longer-term chart shows that the 2015-2019 bear market is over and that a strong acceleration upwards is happening.

China’s Government Bonds

Despite a Consumer Price Inflation running at 4.3 % due to food prices and the Pork Swine Flu, China’s Government bond yields reached a historical low in March 2020, as growth rates and inflation expectations have been on the decline.

However, we would not chase Chinese Government bonds higher as the nascent recovery could accelerate in the second half of the year while inflation decreases only marginally from here.


The structural appreciation phase of the Chinese Yuan that started in 2016 was killed by Donald Trump’s Trade War in 2018. Clearly, the Chinese Government is playing a delicate balancing act between countering the deflationary impact of both the Trade War and COVID-19 on its exports while maintaining a stability to avoid sharp outflows and losses of confidence.

From a long-term perspective, COVID-19 is a catalyst that will ultimately reveal the frailties of the western democracies economies and the relative strength and efficiency of the Chinese political, economic and social system.

Its main consequence in our view is that it will be the trigger for a significant shift in portfolios out of the hyped US financial markets into the more undervalued Chinese financial markets, and consequently currency.

Moreover, the Chinese economy will probably pull-out of the economic downdraft faster than the US economy that is bound to heal its over-leverage wounds for much longer.

This is probably a good time for long term investors to accumulate the Yan and increase their exposure to the Chinese currency. We expect it to remain stable at current levels 7 to 7.20 until there are more signs of an economic recovery in the second half of the year, where it should start resuming its long e=term appreciation phase.

The World’s first State-backed Crypto-Currency

In a significant milestone, China is about to launch the first State-backed Cryptocurrency, illustrating one more time its ability to overtake the previous economic powers in the quest for the future, as is the case with Huawei and 5G technologies.

In the past few weeks, there have been more and more reports that the PBoC will soon issue the world’s first central bank digital currency (CBDC), also known as digital currency/electronic payment (DCEP).

Intel leaked in mid-April showed that the Agricultural Bank of China had launched a digital currency wallet mobile app to commence internal tests which involved white-listed citizens in four pilot cities including Suzhou, Shenzhen, Xiong’An, and Chengdu.

Initial tests will start on a small scale and be integrated into bank accounts. In Suzhou, employees of government institutions and state-owned entities (SOEs) in the Xiangcheng District will become the first experiment users, according to the local news outlet, citing an official document. They would install digital currency wallets linked to any of the big four state-owned banks by end-April and receive 50% of their transportation subsidies in DCEP from May.

Apart from commercial banks, other participants such as telecoms companies and third-party payment companies were highlighted as potentially acting as alternative intermediaries. This suggests the DCEP model will lean toward a two-tier system with the central bank being the currency issuer and the commercial banks or payment companies providing onward distribution to wallet users.

Long term strategy

Contrary to what is happening in the West where crypto-currencies initiatives are in the private sector – Facebook’s LIBRA – and Central Banks are pushing back on the projects, in China, the most digitalized economy, the State has taken the initiative a long time ago, wanting to preserve its exclusive privilege of printing money.

The PBoC is leading in CBDC exploration. It initiated research work on CBDC back in 2014. The internal research unit under the PBoC, the Institute of Digital Currency, was established in 2016 to investigate the possibility of issuing CBDC as cryptocurrencies were starting to gain momentum. The PBoC and some domestic commercial banks began testing the digital currency via trading digital commercial paper in 2017. While some other central banks have shown interest in digital currencies according to the Bank for International Settlements (BIS), China’s test in 2014 appeared to be the first of its kind in the world.

In late 2019, PBoC officials officially mentioned that the launch of CBDC was almost ready and its top-level design all but complete. The progress gained further traction in 2020 with a pilot program of DCEP coming into reality. The PBoC and related subsidiaries have reportedly filed over 80 patents relating to its plans to launch a CBDC. The legislative process is underway to facilitate CBDC issuance and circulation in the foreseeable future.

What is China’s DCEP

China’s DCEP is a sovereign-issued currency based on blockchain technology.

In simple terms, China’s DCEP is the digitalization of physical cash (i.e., paper cash, coins, and banknotes), or in other words, the substitution of money in circulation. The ultimate goal is to suppress all forms of traditional coins and banknotes from the system relatively quickly and streamline payments and the costs associated with them while eliminating criminal activities.

DCEP is a legal tender fully backed by the Chinese Government and its issuing Central Bank and is converted 1:1 to Chinese renminbi. This makes it distinctive from existing cryptocurrencies such as bitcoin, where a major concern is the lack of recognition and oversight of sovereign countries, which has led to huge volatility in value.  Furthermore, unlike decentralized and volatile crypto assets, DCEP cannot be used for speculation.

Similar to cash, DCEP is non-interest bearing, fully backed by the PBoC, and essentially a central bank liability. But DCEP is transaction traceable, which will alleviate the risks of paper money transactions such as money laundering and illegal financing. DCEP is also more convenient than cash in remote payments.


We have long been advocating the issuance of Government-backed cryptocurrencies and believe that DCEP integrates the advantages of both physical cash and cryptocurrencies.

DCEP enjoys cryptocurrencies’ low issuance/storage cost, anonymity and traceability while maintaining the advantages of physical cash such as its legal status and relatively stable face value among others. Unlike cryptocurrencies, DCEP is a centralized and sovereign issued currency and cannot be mined.

In comparison with traditional e-payment, DCEP is a more advanced payment option in terms of “controlled anonymity” and costs and will ultimately revolutionize our payment systems as well as our banking systems.

This means the DCEP issuance and transaction data is centralized controlled by and only visible to the PBOC, while all other parties in a transaction cannot trace the underlying DCEP users or their transaction history without the permission of the users. This allows DCEP to better protect user privacy than electronic payment.

Last but not least, DCEP payment/transfer is proposed to be internet-independent, allowing for offline point-to-point payment. In comparison, the existing third-party payment apps (Wechat Pay and Alipay) run on their respective online platforms, which are not compatible with each other.

Financial service and financial stability. Fintech and blockchain technology have boosted financial productivity and promoted innovation, making the financial system more efficient and convenient with lower costs. The roll-out of DCEP should further accelerate digital currency use in China. While mobile payment user penetration reached over 80% as of 2019, these users represented slightly below 50% of total population. DCEP cannot change this dynamic in the short run, but those who prefer controllable anonymity or PBoC-backed payments which could become valid on any platform may find more reasons. This suggests DCEP will attract both new users and existing users of third-party payment apps to concurrently use DCEP together with other options.

The launch of the Digital Yuan or Crypto Yuan will mark the beginning of a new era in payments and banking services, eliminating not only cash but actually debit or even credit cards as well.

It will make payments safer and far more cost-effective and will probably end the central role of the banking system in our economies, leaving them to focus on lending, intermediation and capital markets rather than deposit-taking.

One of its consequences will also be to give a significant head start to the Chinese Yuan in international trade and payments as foreign entities and individuals could start using it to buy online, even in their own country.

Taking Another look at the health crisis in China

There are interesting numbers to look at when trying to assess both the reality of the health crisis in China as well as the impact of the February March lockdowns on its economy and one of the sets of data worth looking at is the unusually large number of mobile and landlines that were canceled over the period.

Officially, China acknowledges 83’976 contaminated people and 4’637 fatalities, by far the lowest numbers relative to its 1.4 billion population of all of the 196 countries that have reported cases to the WHO.

But recently, the China’s Ministry of Industry and Information Technology reported last month that more than 21 million cell phone accounts were cancelled and 840,000 landlines were closed in China over the period.

The precise numbers showed that the number of cell phone users decreased from 1.600957 billion to 1.579927 billion, while landline users dropped from 190.83 million to 189.99 million in February 2020 alone, during the peak of the epidemic and the lockdown period.

China Telecom, China’s second-largest carrier has lost 5.6 million users in February 2020 and 0.43 million users in January 2020while China Unicom also lost 1.186 million users in January 2020.

What is interesting about these unusual numbers is that the Chinese authority introduced mandatory facial scans on December 1, 2019, to confirm the identity of the person who registered the phones. The people in China also have to sync their bank accounts and social security account with their cell phone as all the apps can detect the SIM card and then check with the database to make sure the number belongs to the person.

It is also mandatory for every Chinese citizen to install a cell phone app and register their personal health information. The app can generate a QR code which is possible in three colors to classify a person’s health condition. In this case, red means the person has an infectious disease, while yellow and green represent the possibility of infectious disease and no sign of such illness respectively.

Beijing claims, probably rightly so, that the health code has helped China to prevent the spread of Coronavirus in the country

So the highly unusual cancellation of 21 million cell phone lines in February raises a number of questions about the potential number of deaths linked to these cancellations.

One of the explanations could be that some migrant workers had two cell phone numbers before the crisis, one from their hometown and the other from the city they work in. In February, they might have closed the number in the city they work in because they couldn’t go there and wanted to avoid paying the monthly fees associated with these extra connections.

Another explanation could be that the economic downturn caused by the outbreak could have forced the Chinese people, who have two or more cell phones to cancel one of them and that many corporations facing bankruptcies have closed their business lines or the ones of their employees.

Indeed, the unemployment rate jumped from 5.2 % in December 2019 to 6.2% in February 2020, meaning that 7.75 million Chinese workers lost their jobs in the first two months of the year. But in China, living without a cell phone is almost impossible so people tend to hold on to their lines even when in dire economic situations.

It is also true that 247’000 corporations went into bankrupcy in the first two months of the year with Guangdong being most impacted province, with over 30,000 firms going out of business, followed by Shandong, Jiangsu, Sichuan, and Zhejiang.

The data echoes a string of surveys showing many Chinese companies, especially small businesses, are feeling the pinch as the pandemic brought consumer activity to a halt. Almost 36% of the private-owned firms that responded to a survey conducted by Tsinghua University in February said that they were hammered by the economic fallout from the outbreak and did not expect to survive after a month.

It is also true that given the large-scale closure of government offices in January and February, a considerable number of companies in serious financial trouble were unable to file for bankruptcy and the true numbers of bankruptcies will transpire in the March and April reports.

Clearly, 21 million closures only represent 1.3 % of the 1.6 billion cell lines in operation and therefore the data may not be really relevant as such apart from the usual growth trend of cell phone penetration in China, if only 1 % of the cell lines were mandatorily closed because of the death of the subscriber, then China’s death toll would be closer to 210’000 fatalities, a 0.015 % death rate, much closer to America’s 0.024% or Germany’s 0.009 %.

The Blame Game

According to tio ABC News, as far back as late November, U.S. intelligence officials were warning that contagion was sweeping through China’s Wuhan region, changing the patterns of life and business and posing a threat to the population.

In a highly politicised climate ahead of the November 2020 US Presidential elections, Donald Trump’s political strategy seems to be using the blame game again and pointing fingers at China, asking for a new natch of tariffs to compensate for “the mishandling of the Pandemic” by China.

Concerns about what is now known to be the novel coronavirus pandemic were apparently detailed in a November intelligence report by the military’s National Center for Medical Intelligence (NCMI), according to two officials familiar with the document’s contents.

The report was the result of an analysis of wire and computer intercepts, coupled with satellite images. It raised alarms because an out-of-control disease would pose a serious threat to U.S. forces in Asia — forces that depend on the NCMI’s work.

And it paints a picture of an American government that could have ramped up mitigation and containment efforts far earlier to prepare for a crisis poised to come home.

“Analysts concluded it could be a cataclysmic event,” one of the sources said of the NCMI’s report. “It was then briefed multiple times to” the Defense Intelligence Agency, the Pentagon’s Joint Staff and the White House. Wednesday night, the Pentagon issued a statement denying the “product/assessment” existed.

But how much of these one-sided allegations is actually corroborated by verifiable facts?

We are obviously not taking any side or questioning the veracity of the US intelligence community reports, but it is interesting to look at the Chinese version as well through multiple independent reports of Chinese citizens who have lived through the pandemic in China.

According to the official timetable announced by the Chinese government, Dr. Zhang Jixian discovered four new cases of pneumonia on December 26. She reported to the government on the 27th. Therefore, officially the Chinese government only learned about this new disease on December 27, 2019.

Through retrospective analysis, including WHO reports, the first patient found by Chinese scientists was on December 1st. But this person did not go to the hospital. Another patient fell ill on December 8. He went to a small hospital on the 12th and the hospital failed to diagnose his disease correctly. After this, some patients went to other hospitals, but no doctor reported to the government before December 27.

So, in November, when the epidemic had apparently not yet erupted in Wuhan, how could American intelligence agencies know in advance of the outbreak?

The ABC News report states that :

“As far back as late November, U.S. intelligence officials were warning that a contagion was sweeping through China ’s Wuhan region, changing the patterns of life and business and posing a threat to the population, according to four sources briefed on the secret reporting.”

Wuhan is an 11 Million-strong city with mots people connected to the internet and social media. There are almost no reports in social media that citizens knew that the epidemic occurred until the end of December. There was no activity before the end of December signaling that something abnormal was taking place in Wuhan.

They are no accounts of any rumors about the epidemic, nor of any signs that the Government was trying to shut down the social media. The 11 million people living in Wuhan, have relatives throughout China and around the world, and there again, there has been no reports that Wuhan people changed their life and business patterns in November and December 2019.

Thousands of foreigners live in Wuhan, including press correspondents, and there again there does not seem to have been any reports in November and early December that a Pandemic was taking place there.

Moreover, it has been established that at the beginning of January 2020, the Chinese Government has initially tried to silence doctors and finally resolved to deal with the matter and actually fired two of its highest-ranking representatives in Wuhan and in Hubai for having mishandled the crisis. They imposed drastic lockdowns in the middle of January, confining up to 100 million people to their homes

Why did they not do it in November if the pandemic was already that widely spread…

Whether America believes it or not, the hard facts are that China has taken a major economic hit form the COVID-19 that it could have avoided having ample means to react had they know about the Pandemic earlier…

Donald Trump’s administration’s logic of confronting and blaming China may resonate with the 42 % of Americans who will follow him comes what may, but on a more global level, the constant blame game has cost America and the world too much un-necessary damage since February 2018 and could cause even more damage if we were to move into a renewed sanction phase.