The Impact of the Coronavirus on the Chinese and Global Economy
As Coronavirus victims in China continue to grow in numbers, and with the nation increasing its preventive measures; many people have another important issue on their mind, aside from the obvious safety concerns. Being that most public venues are still not allowed to continue operations, and with roads, railways, and even residential compounds being sealed off, many workplaces are similarly struggling to decide whether to resume work in offices, or stay safely at home. Naturally, foreign and Chinese employees alike are becoming increasingly worried about their careers in the near future, and the rest of the quarantined country is already starting to feel the impact of the epidemic on their business as well.
These worries, in fact, have reached much higher levels than just the average office employee, and the country’s top officials, as well as higher-level industry executives, are struggling to find the right balance between work and safety, and warn of the imminent threat to China’s economy.
As the outbreak began to seriously settle during the Chinese New Year – a time when most businesses and companies are not operational anyway – the impact’s severity wasn’t as obvious at first. Now, as the festival has run its course, and had an almost two-week extension to its vacation, operations have begun to resume in some select sectors., particularly in “key industries” such as food and pharmaceuticals. However, there are still many industries that have not yet been allowed to resume work, leaving roughly two-thirds of the country’s workforce at a standstill. Although somewhat short-lived, the effect of this epidemic on the local economy (and even on larger scale, international), is devastating first-quarter growth across different industries.
Public Venues and Education
Being that education is one of the key fields of work for foreigners in China, this industry is the most obviously apparent in its postponed resumption. Until now, all schools, training centers, and universities have suspended operations indefinitely, leaving many teachers stuck at home, contemplating whether to wait around, or leave. Many teachers have also been faced with issues regarding salaries, as the legality surrounding this issue is somewhat ambiguous. Of course, the real sufferers are generations of students who are now home-schooled, and rely on technology to continue their education at home.
Many types of ‘non-essential’ entertainment venues (such as bars, clubs, theatres, etc.) have been ordered to suspend reopening, and most restaurants remain closed, or just allowed to use food-delivery services. In many provinces, roads and public transportation are either closed, or strictly limited, making daily commute a major difficulty as well, and leaving individuals and small-business owners worried for their needed daily income.
Although these are very necessary prevention measure, their effects are starting to trickle down a much larger scale, and even at the global scale. With giant franchises such as Starbucks, or global corporations like Apple still not allowed to open shop, the first quarter for many companies is already absorbing a major decrease in sales.
Travel & Luxury
Global travel and airline industries, as well as related sectors such as luxury retail brands, have also been harshly hit by the decrease in Chinese participation, which in the last two decades was the driving force of monetary growth, particularly during the Chinese New Year period. On the first day of the Chinese New Year, for example, overall travel plunged by almost 29% compared to last year, as Chinese nationals are complying with the strict containment and quarantine measures.
Many European luxury-brand stocks have plummeted amid the loss of Chinese consumers who are now holding off such large-scale spending sprees both domestic and abroad. Burberry, for example, has seen about a 10% decline, and other conglomerates seeing averages of about 5% decrease in value as a result of the disruption.
Stock Markets & Domestic GDP
Stock markets worldwide, and particularly in Asian markets, have mirrored the declines seen in other sectors, leaving both investors rattled, and economists worried. The Shanghai Composite Index saw a 2.8% decline, and Hong Kong’s Hang Seng a 1.5%. Analysts, who have previously estimated a 6.1% expected rate of increase in China’s first-quarter GDP growth, now place the figure closer to 5.9% (or lower), resulting directly from the virus.
The same analysts, however, are also somewhat optimistic with regards to recovery, pointing to historical equivalents of the crisis, which usually respond with a V-shaped recovery trend following the turmoil. This is due to pent-up demand in the market – resulting from the temporary regression – which helps boost a healthy rebound in the economy. If and when this prediction will be realized, is hard to say, but is likely to be around mid or late second-quarter.
Government Reaction and Efforts
High level officials continue to encourage committees and authorities of all levels to achieve this year’s economic and social targets despite the epidemic, in order to maintain economic growth. New tax policies and other fiscal measures are already being introduced, in order to help injured industries cope with the burden. China’s central bank has announced its intent of stepping up aid by implementing measures to tackle the slowing. Some $1.6 billion in subsidies have been issued towards medical care and other related equipment and purchases by China’s ministry of finance. State media outlets have also been urged to refocus their attention to economic recovery.
Conclusion
With China being in the midst of a trade war with the U.S., and with an already slowing economy (growth rates at their lowest in three decades), this new additional struggle will surely be a major test to China’s strength and governance capacity. Just how far into the future this impact will be felt, is yet to be seen, and is hard estimate at this point in time. In 2002’s SARS epidemic (as a point of reference), the outbreak had a “notable but short-lived impact” on China’s economy, and saw a 1-2 percent decline in GDP growth, after its nine-month long reign. Almost two decades later, China’s capabilities in terms of damage-control management are obviously significantly bigger, but are also weighed down by its global prominence, accounting for 16% of global GDP, compared to just 4% during the SARS epidemic.
One thing for sure, is that many efforts have been quite successfully carried out into maintaining peace and unity during these harsh times, and ensuring that the problem is handled in the safest way, despite the unavoidable disruption to the normal way of life. Hopefully this struggle will allow China to come out stronger, and have its ambitions of recovery mirrored in the people’s will to help set the nation back onto the road of recovery.
Image Sources:
https://www.newswirenow.com/wp-content/uploads/2020/02/867976/hong-kong-shoppers-line-up-empty-supermarkets-amid-coronavirus-fears-business-insider-1024x512.jpg
https://s3.us-east-1.wasabisys.com/kion546.com/2020/01/https___cdn.cnn_.com_cnnnext_dam_assets_200129142940-03-beijing-china-coronavirus-0128-860x484.jpg
https://www.gannett-cdn.com/presto/2020/01/28/USAT/eaf4c316-49b8-4a6b-92d0-c50d304cbf4a-EPA_THAILAND_CHINA_EPIDEMIC.JPG?crop=3681,2071,x0,y325&width=3200&height=1680&fit=bounds
https://cn.bing.com/th?id=OIP.aL08QKwKjS5xUUuW5wMwaAHaE8&pid=Api&rs=1
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