Qingming Festival (Tomb-Sweeping Day)

On April 4, China observes Qingming Festival, a tomb-sweeping day, this year. Ahead of this memorial day, the Wuhan government decided to release ashes of virus victims from the city's 7-8 crematoriums. Each crematory plans to distribute 500 per day, up to Qingming Festival. Some people are speculating that the total number of the death can top up to 5,000 over the next 10 days (500 per day * 10 days = 5,000), far exceeding the total number of reported deaths (2,538). Is the Wuhan government lying the total number of victims? 

Generally speaking, I don't blindly trust figures released by any government. They are just useful guidance, which could be manipulated quite easily by interested parties. The quality of the figures reported by Chinese governments is generally lower than other governments for sure and we need to think twice and thrice if the figures really make sense. For example, the Chinese government later confirmed that the "new infection case number" they release does not include asymptomatic cases, making it very difficult to compare against the figures reported by other countries. 

I always ask myself which number I can trust... or least the risk of manipulation. Unfortunately, in the case of the current virus outbreak, it's the total number of deaths, not only caused by the virus, but by all causes. This is the figure very difficult to manipulate because you cannot erase the memories of people (unless you kill everyone). 

My team found data available released by the Wuhan government for the last two years ( http://mzj.wuhan.gov.cn/tjxx/387166.jhtml). During the period, Wuhan government has very little incentive to report false figures. According to this data, Wuhan had 56,007 cremations in 2019, which is 462 per day. The figures have been quite consistent and very close to China's national-level mortality rate reported by the World Bank. I think the figures are reliable. 

• Assuming the city has 8 crematoria, each crematorium has 58 cremations a day. 

• Assuming each crematorium has 20 furnaces, each furnace burn 3 bodies a day before the outbreak

Most of the friends in Europe and the United States probably do not know, but based on my experiences, it takes a lot of time to burn the human body. It takes about 3-4 hours. That means each furnace is used 9-12 hours a day. Most crematories usually do not have much excess capacity because as the data below shows the number of death does not fluctuate very widely. 

Most of the deaths caused by the virus occurred within a month period, meaning 11 additional cremations per crematorium per day, or just 20% more than the historical average. Many media reported that crematorium was running the furnaces almost 20 hours a day in February. That definitely raises a question if the additional deaths caused by the virus were actually higher, probably 5,000-7,500. 

Wuhan's death toll is translated into 5.0% mortality rate, which seems quite low compared to Italy's 11.0% as of today. Wuhan was the epicenter and front line doctors did not know how to deal with the situations at the beginning. The medical supplies were critically in shortage as the city was locked down completely. There must be many victims who had died before properly diagnosed. Assuming Wuhan's mortality rate is the same as Italy's, the total death toll should be higher than 5,000, probably 6,000-7,000. Wuhan government is expected to release Q1 figures in May. At that time, we can confirm if this assumption was reasonable.

You may wonder... what is the point of doing this? As a long-term investor, it is important for us o know the worse case scenario so that we can understand the real degree of margin of safety when we make investment decisions. Understanding what happened in China over the last two months is very useful guidance for the rest of the world. For example, during the two months period, China lost 20 mm employment. China's labor force is approximately 800-900 mm, so that's about 2.5% of unemployment. Last week, 3.3 mm Americans filed for unemployment benefit, or 2% of the labor force. In case of the United States, the actual unemployment rate may increase more. 

What people tend to forget is that the US economy has created almost 10 mm employment since 2016 and the actual unemployment rate was well below the Natural Rate of Unemployment, i.e. the economy created too many jobs. So, even though we lose 4 mm jobs, it will just bring us back to 2013 level. During the recession time, it's natural to lose jobs. And, if we use China's experiences as guidance, the society will find a way to operate "remotely" and create more jobs. 

Let's not get fooled by the big numbers.