Dr. George Calhoun is a Professor and Director at the Hamlin Financial Systems Center at Stevens Institute of Technology. He was Chairman of a company's engineering joint venture with Rafael Armament Development Authority, a branch of the Israeli government.
Federal Newswire
Can you explain the issues with China and the origins of Covid?
George Calhoun
Over the years, one of the focuses that I developed was to try to understand the data. I was initially looking at economic data, GDP, unemployment, or any of the other standard kinds of metrics that we take for granted here in the United States.
In the second largest economy, those metrics are not not very transparent. There are a lot of questions related to the integrity of the data or whether the information is really reliable or is being manipulated in some way. When COVID hit all of us, a new fountain of data turned on and [I] paid attention to it because it was clear that it was going to have a major economic impact.
The manipulation [of the data] began pretty much after the first couple of months. I did look at the data that was coming out of China on mortality and infection rates. These are things that would have an impact on the economy. As China went into a lockdown, [I was] trying to figure out what's going on.
We know what Covid did to our economy. It was a shock that rippled through all the data that we track. We didn't get a good sense of what was going on in China. So that's why I started to look at it more closely.
Federal Newswire
Where did you go to find reliable data sources?
George Calhoun
Well, the story is interesting. The outbreak occurred towards the end of 2019. There's debate about when and where the very first cases occurred. But I think in the beginning, the Chinese authorities in Wuhan were reacting to a crisis that they didn't necessarily understand. They hadn't figured out yet what was going on.
There's a lot of confusion in that type of situation that I think is forgivable. But for the first 90 days, I would say the first quarter of 2020, the reporting was pretty good and it was in line with Wuhan.
But then in April they stopped reporting for the next two years until December of 2022. They reported essentially zero deaths, zero infections. There was a small outbreak in Shanghai that they reported, with just a small handful of people affected. This is a city of 20 million-plus people that was shut down in almost a prison-level lockdown.
From that point until today, all of the statistics just don't make sense. Even after “Zero Covid” was lifted, there was a small adjustment to the data on mortality, but then it was shut down again.
Basically they've stopped reporting. That meant that if you wanted to understand the impact,, you had to look to other metrics that weren't being suppressed. That's the way I approached it, and that's the way that a number of other people in other groups around the world also tried to to get out in much the same way.
Federal Newswire
From the data you could obtain, what kind of impact did Covid have in China?
George Calhoun
The U.N. World Bank, and a number of other international institutions collect this information as reported by the Chinese Bureau of Statistics. The death rate in China, the total death rate for the whole population from all causes shows a very revealing pattern that in 2019–it jumped by about a factor of five. You clearly had an event of some kind taking place that was now causing a much higher death rate across the country.
Its timing fits with the COVID outbreak. I think it's at least a plausible hypothesis that that's what was causing what they call excess mortality.
Working from those numbers you come to something like three million excess deaths, or maybe twice that number. It probably will take a while for people to get a more accurate picture.
The other peculiar thing about the Chinese policies in response to COVID is that they did not use the two years of severe lockdown to vaccinate the most vulnerable populations aggressively.
It's strange. As an authoritarian regime, they could weld people into their apartment buildings and keep people from traveling. But they didn't apply that same policy to a vaccination program. Even when Zero Covid was lifted, there were still tens of millions of elderly Chinese over the age of 60 and 80 who were unvaccinated or only partially vaccinated.
Federal Newswire
Did the data you were able to examine confuse you in any way?
George Calhoun
There is the extremely dark hypothesis that this was a way to take care of some of their demographic imbalances. I can't believe that. I can't bring myself to believe that that's what was going on.
I think instead it was more likely a response that is very common in Chinese policy coming from the top: if you've got a problem, you want to cover it up, you want to keep it under wraps, and present a face of success and competence.
Before we had a vaccine, we didn't really know how to respond to it properly, and didn't know what path it was going to take. The chaotic crisis mode that the West and US was in, I think the Chinese were looking at that and they wanted the Chinese Communist Party to say, “Well, we're in charge, we've got a better program.”
The data bubbling up from underneath was going to contradict that, so the solution is to stop reporting the data. That's what they did.
Federal Newswire
What is your assessment of the economic impact of COVID on the world?
George Calhoun
A lot of observers in the West assumed [there] would be a strong economic rebound in China. Reports from analysts at places like Goldman Sachs and others were very bullish at the beginning of 2023. There were worries about the implications of that for rising inflation and other things.
That hasn't happened. The analysis that you read today shows a shocking downturn in the Chinese economy. Now the question is, are they entering into a Japan-ification scenario where [with] long-term deflation and stagnation, similar to what happened in Japan following the bursting of their bubble at the end of the 1980s?
What's interesting to me is that, even today, there is an under-appreciation of the significance of the COVID outbreak in China. It accelerated into this unvaccinated population like a wildfire at the beginning of 2020. I think that's a major contributor to their economic downturn.
There's a lot of doubt you can detect in the Chinese purges of high level officials, and uncertainty about how to respond to economic developments like the property crisis and others. They're not showing the sort of decisiveness that has been associated with their form of government for the past 20 years or more.
Federal Newswire
With the changes and uncertainty in the Chinese economy, how should industry and political leaders adjust to this new reality?
George Calhoun
The change has been very abrupt and an amazing reversal of public sentiment. Five years ago [and] certainly 10 years ago, a majority held positive opinions … [about] China. That has flipped now to very strongly negative.
If you dig into those numbers, it's driven by the mishandling of the COVID situation, or the public's perceived perception of how that has been mishandled or manipulated by the Chinese government.
The decoupling is underway big-time. A lot of companies are not yet talking loudly about it, because until they've completely achieved whatever the decoupling is that they want to achieve, they don't want to annoy their counterparts in China.
Even Apple is looking at how they can de-risk away from dependance on China, and many other companies are doing the same thing. Vanguard, [perhaps] the second largest asset manager in the world after BlackRock, is pulling out of China.
The Chinese market has been the “next big thing” for asset management for 20 years.
That was the target for so many firms in the financial world. They're all pulling back now to one degree or another.
Federal Newswire
Where do you see opportunities for advances in technology and manufacturing?
George Calhoun
You're seeing it already in Japan. For example, their stock market indexes hit an all-time high just recently. They seem like they are finally getting their mojo back in various ways. They have major development underway to become, again, a strong player in the semiconductor business. They've kind of been in their own funk for a while, but they seem to be coming out of it.
I'm a big fan of Korea. I did a lot of business in Japan and Korea in my corporate days. I always would tell people it's very difficult for an American firm to do business in Japan. Maybe that'll be a little easier now, but it was super-easy to do business in Korea. I think that relationship will also benefit, not that there aren't costs of adjustment there.
Both of those countries had and still have significant entanglements with the Chinese markets. I'm not saying those are going to go away overnight, but as they reorient to a supply ecosystem, perhaps as a little bit of the semiconductor ecosystem reorients away from China, it's going to benefit those two economies for sure.
Taiwan, I don't know. I don't know how to handicap the risk of something outside the box of the economic system or a military action. Financially, I guess Singapore has been benefiting from a lot of the outfall from the Hong Kong demise.
It's not that I [don’t] think Asia will still be a very important part of the economy and a growing part of the economy. But I think China's leadership has taken a big hit, and people will be looking to these other countries from an economic standpoint.
In the semiconductor space, which I know something about, there is a tendency in the West to greatly overestimate Chinese technical capabilities. I think that gap is only going to grow now that there is an orientation towards getting de-risked and decoupled.
Federal Newswire
Where can we go to follow more of your work?
George Calhoun
I write a column for Forbes online. I'm a contributor and I try to publish about once a week.
