China Orders Owners Of Closed Factories To Boost Electricity Usage, Pretend Economy Is Back To Normal

While the media is doing its best to pin the upcoming coronavirus epidemic in the US on a botched response by the Trump administration, with TrumpVirus already starting to trend across social media, the truth is that no matter how bad Trump’s reaction to the pandemic is, it is rocket science compared to the botched, catastrophic actions undertaken by China, which also happens to be source of the deadliest global pandemic in decades.

Here is a quick recap of what has happened so far in China:

• The deadly Covid-19, i.e., SARS-like coronavirus, originated as a byproduct of banned “gain of function” genetic engineering conducted at the Wuhan Institute of Virology. Contrary to the conventionally accepted official narrative, it then spread, presumably by accident, to a nearby food market, where it infected patient zero and the rest is history (in the meantime, anyone who reported that the virus was sourced at the Wuhan Level-4 biolab was ostracized, shunned, threatened, arrested or simply ordered to retract their statement or research).
• In the early days of the pandemic, in hopes of avoiding a panic, Beijing actively rounded up any doctors who tried to sound the alarm on the danger that the coronavirus posed. Only three weeks later, around Jan 20, did China start reporting official numbers associated with the disease.
• Just days after it “broke the seal” on the information blackout, Beijing quarantined over 60 million people in major Chinese cities, in hopes of avoiding a further panic, and preventing further spread of the virus. Ultimately, over 700 million people – half of China’s population – was put on some form of lock down. Panic had by now spread across the mainland, as virtually nobody in China had any idea what the facts were aside from the government’s propaganda.
• As a result of the widespread quarantine, China’s economy came to a complete halt and for weeks after the Lunar new year, various high-frequency indicators showed that the economy has failed to reboot. Realizing that an economic paralysis could be just as devastating for its primary objective of preserving social calm and stability, Beijing had a change of heart.
• Faced with a catastrophic dilemma, and forced to choose between either economic collapse due to mass quarantines, or economic collapse due to a frozen economy – with the bulk of China’s SMEs which are responsible for 60% of China’s GDP, facing insolvency in 2-3 months unless things return to normal – Beijing reversed track and started to openly manipulate the coronavirus data in mid-February to contain the widespread panic and give the impression that it had the pandemic under control, even though periodic reports demonstarting just how Beijing was lying about the real numbers and occasional “changes in definition” which resulted in a surge in “new cases” confirmed to the population how Beijing was purposefully underreporting the full extent of the pandemic. This only made the distrust worse, not helping to contain the rising panic.
• Meanwhile, with social media reporting of mass arrests and still showing sick Chinese citizens collapsing or outright dying out of the blue, the population lost all faith in anything disclosed by central government and virtually nobody went back to work despite the politburo’s strict orders to do so, correctly convinced that Beijing is lying and the pandemic is far from contained. The panic continued, as did China’s economic devastation.

We know much of this, because as we first noted almost three weeks ago, “alternative” trackers of China’s output in near real time confirmed that the economy had ground to a halt: pollution, traffic, congestion, coal and electricity usage data, all showed that the country was paralyzed, its economy hibernating at the near-zero output level reached during the lunar new year…

And while few believed just how catastrophic China’s slowdown – which we profiled in “China Is Disintegrating: Steel Demand, Property Sales, Traffic All Approaching Zero” was – it was all confirmed when the latest Chinese PMI data released early on Saturday showed that China’s economy was now in freefall, as both the manufacturing and non-mfg PMI had cratered to record lows, taking out even the financial crisis lows.

And this is where the reflexivity of “everyone knowing that China does nothing but lie” comes in, because Beijing was well-aware that it couldn’t print some overly cheerful PMIs prints – not only would that be ridiculous in light of the complete halt in China’s economy, but it would further crash what little was left of Beijing’s credibility. Instead, China decided to kitchen sink February – after all that’s when the bulk of official corona cases and deaths was reported – and push for an impressive rebound in the March economic data, with February marking the bottom, or to loosely paraphrase Lester Burnham “It’s all uphill from here.“

There’s just one snag: while Beijing may report any fabricated data it wants – whether coronavirus-related or economic – in hopes of easing the mistrust and social panic, China’s population still has absolutely no confidence in either Beijing, in Beijing’s ability to contain the coronavirus, or especially in Beijing’s apparent willingnes to sacrifice its population in order to reopen some mothballed factories to give the impression that the economy is on the mend. And here Beijing’s task has become especially complicated, because the world’s attention has now focused on those alternative, high-frequency economic indicators which we first laid out weeks ago; indicators which are far more difficult for Beijing to forge than just GDP, or industrial production or retail sales, which as everyone knows, represent just goalseeked numbers in an excel spreadsheet and nothing else.

And what’s worse, with everyone closely following said alternative indicators, it makes Beijing’s task of staging a miraculous economic rebound in March, April and onward from the February crash, virtually impossible since as the following charts show, China is still very far away from normal output.

At this point, Beijing had an idea: instead of goalseeking its GDP number or retail sales print or fabricating a 50+ PMI report, which nobody cares about now anyway, China’s political elite would have to focus on manipulating the high-frequency indicators that everyone (such as Capital Economics) is closely following to determine if China was careening over the cliff – after all, as we explained last week, Beijing now only has about 3 months before its companies run out of cash and the economy implodes from mass defaults and bank failures unless the economic situation is stabilized.

Incidentally, this is what we said back on February 10, when we warned that the “alternative” economic data sets would provide a far more comprehensive and accurate view of economic activity in major cities in China, “at least until China decides to “adjust” the high-frequency, real-time data too, making this latest “alternative” indicator of China’s economy also meaningless.“

Three weeks later that’s precisely what has happened, because in order to game these high-frequency data, of which coal and electricity usage are the most important ones, we now learn that a “Wenzhou-based factory owner tells how district officials are telling him his closed factory (he has no workers) must turn on the machines and consume electricity or he’ll get “a visit”. ” 

Argh. A Wenzhou-based factory owner tells how district officials are telling him his closed factory (he has no workers) must turn on the machines and consume electricity or he’ll get “a visit”. Higher ups are watching the electricity numbers. The anti-Li Keqiang indicator! https://t.co/PTEBARIDW6

— 优述/You Shu (@You_Shu_China) February 28, 2020

Why must the owner of the empty factory pretend the factory is operating? Because “Higher ups are watching the electricity numbers.” And why are higher ups watching the electricity numbers? Because they know that not only the rest of the world is also watching these numbers, but so is China’s population. And absent a rebound in electricity usage, even if it is to power unused machines in empty factories, China can’t hold out hope to pretend that February was the kitchen sink month as the level of economic activity simply will not rise for months… unless of course Beijing orders the local population to simply consume for the sake of giving the outside world it is consuming as if things were back to normal.

Only they aren’t, and instead of Chinese ghost towns, we now have Chinese ghost factories whose only purpose is to try to fool its population and the world that the coronavirus pandemic, which is still raging in China, is under control and the Chinese economy is back on solid footing. Of course, neither is actually happening.

And in further proof that China is now openly manipulating those same “alternative”, high-frequency data, we get another account according to which a factory manager was told he must consume 3000 kWh electricity by midnight, as authorities use electricity usage as a criterion of re-open rate. Even the factory has not re-opened for lack of supply and manpower due to #COVID2019, the manager had to switch on all the air conditioners and other equipment to ensure they achieve the quota.

Why? Just so this chart swings sharply higher – a necessary condition for Beijing to be able to “report” that the Chinese economy is back online, and restore confidence in global supply chains.

Will this grotesque gamble at telegraphing economic “normalcy” work? Perhaps for a week or so, but if Beijing is unable to restore the all-important confidence of the local population that the pandemic is under control – and as a reminder just last week we noted that “Chinese Workers Refuse To Go Back To Work Despite Beijing’s Demands” – then all these desperate actions will be for nothing: after all without its massive workforce back in the office, or the ghost factory as the case may be, China can only maintain the facade that it is back on-line for just a few weeks at best.

Meanwhile, the 3-month countdown to economic Armageddon continues, and absent some miraculous cure of the viral pandemic which Beijing itself started with its forbidden viral experiments, China’s economy has less than 100 days left before all hell breaks loose.