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The impact of coronavirus on Chinese economy

Published : Saturday, 15 February, 2020 at 12:00 AM  Count : 416
Md Zillur Rahaman

Md Zillur Rahaman

Md Zillur Rahaman

In 2002, when a lethal, pneumonialike virus known as SARS emerged in China, the country's factories were mostly churning out low-cost goods like T-shirts and sneakers for customers around the world. Seventeen years later, another deadly virus is spreading rapidly through the world's most populous country and some other countries. But China has evolved into a principal element of the global economy, making the epidemic a substantially more potent threat to fortunes.

At the epicentre of the outbreak is Wuhan, a Chinese city of more than 11 million people, where the disease was first recorded and is now home to the highest number of cases. Up to February 13, confirmed cases of infection in China are near 65,000 and death toll is close to 1400 in China. This number is rising alarmingly day by day.

The disease has spread beyond Wuhan to Beijing, Shanghai and other highly populated cities in the country. Cases in other parts of Asia such as Thailand, Japan, Singapore and South Korea, have also been reported. In Europe, cases have been reported in France and Germany, and the United States.

Within China, the outbreak and the government's response-essentially firewalling off nearly 100 million people in central Hubei province, where the virus broke out-already have impacted a host of sectors, from hospitality and retail to airlines, insurance, and manufacturing. Numerous cities and towns have implemented their own quarantine measures. Among the most restrictive are those in Wenzhou, the city worst hit by the virus outside Hubei and a major cog in China's maritime trade.

In terms of GDP China is the largest economy, with a GDP (PPP) of $25.27 trillion. By 2023, China's GDP (PPP) would be $36.99 trillion. China's huge population brings down its GDP per capita to $10,100 (seventieth position). It is the world's largest manufacturing economy and exporter of goods. It is also the world's fastest-growing consumer market and second-largest importer of goods. China is a net importer of services products. It is the largest trading nation in the world and plays a prominent role in international trade and has increasingly engaged in trade organizations and treaties in recent years.

But the present coronavirus slows down the movement of Chinese economy as like standstill due to fear and growing confusion globally. International companies that rely on Chinese factories to make their products and depend on Chinese consumers for sales are already warning of costly problems. The most part of damage is not due to the virus itself so much as efforts to prevent it spreading. There are strict restrictions on moving out of Wuhan, where the outbreak began, a city with a population of 11 million.

The lockdown, also now extended to other parts of Hubei province, prevents business-related travel as well as the movement of goods and workers. Fear of the virus also means many people will choose to avoid activities they think might expose them to the risk of infection.

So the restaurants, cinemas, transport providers, hotels and shops are all quickly feeling the impact. Apple, Starbucks and Ikea have temporarily closed stores in China. Shopping malls are deserted, threatening sales of Nike sneakers, Under Armour clothing and McDonald's hamburgers. Factories making cars for General Motors and Toyota are delaying production as they wait for workers to return from the Lunar New Year holiday, which has been extended by the government to halt the spread of the virus. International airlines, including American, Delta, United, Lufthansa and British Airways, have cancelled flights to China. South Korean company Hyundai has suspended its car production because of problems with the supply of parts from its operation in China--an early warning of possible extensive disruption ahead.

China is an important supplier for the global motor industry and the electronics sector. Many mobile phones and computers are made in China or at least have components manufactured there. Like these, financial markets have also felt the effect of the health crisis. China's economic growth is expected to slip this year to 5.6 percent, down from 6.1 percent last year, according to a conservative forecast from Oxford Economics that is based on the impact of the virus so far. That would, in turn, reduce global economic growth for the year by 0.2 percent, to an annual rate of 2.3 percent- the slowest pace since the global financial crisis a decade ago.

The economist predicted that the impact could be more severe than during the SARS episode and even if the coronavirus outbreak is brought under control quicker than SARS was in 2003, the economic impact now looks likely to be of at least a similar scale. There are reasons to worry about this time around compared to SARS, because first of all, the connectivity in terms of transportation and economy is much greater nowadays (as compared) to the SARS episode, It is to be believed the economic impact of the coronavirus could be bigger in comparison to SARS in 2003.

This time is also important because this time is during Chinese New Year, where there are mass movements of citizens around the country going back home for family reunion. And during the next couple weeks, there'll be a massive flow coming back from home to the cities they work. That's why it's possible that this time around the impact could be more severe than during the SARS episode.

According to an estimate by Capital Economics, SARS lowered China's growth by three percentage points in its worst-affected quarter. Overall, growth slowed from 8 per cent year-on-year to 5 per cent during that outbreak.

Economists and analysts still caution that the full economic fallout depends on how well China can ultimately contain the outbreak and on whether the return to work-especially for migrant labourers, who make up a substantial part of China's manufacturing workforce-can be managed smoothly. But most expect Chinese growth in the first quarter of the year to slide sharply, before rebounding later in the year to finish not much worse than the 6 percent increase in GDP China posted last year.

The very limited data available so far suggest that the current impact is not yet that severe but it could end up being similar. But it is now certain that the outbreak will have a significant impact on China's GDP this quarter. Global economy also touches the Chinese coronavirus impact gradually.

The writer is Banker and freelance contributor

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