China's economy is crippled by the recent COVID-19 outbreak, but there's still hope for its gradual recovery.
By Yelizaveta Andakulova
The COVID-19 virus, also known as the coronavirus, has been detected in at least 168 countries, killing more than 19,641 people and infecting over 438,100. It has paralyzed cities and towns, disrupted business, travel and schools. But no place has seen more devastation than China, where the overwhelming majority of deaths and infections have occurred. In recent weeks, though, the number of new infections and deaths reported in China has been declining. How has the coronavirus affected the Chinese economy and what can we learn from previous epidemic outbreaks?
What is the coronavirus?
The coronavirus likely originated in a “wet market” in Wuhan, the sprawling capital city of central China’s Huabei Province. China reported several unusual cases of pneumonia to the World Health Organization (WHO) on December 31 last year. After the third death and nearly 200 reported cases of the infection, China was able to confirm human-to-human transmission of the illness. China’s infection count reached more than 80,700 cases but is declining while the number of cases worldwide seem to be quickly rising. Most recently, the top six countries with the highest number of cases and highest CDC risk level include China (81,200+ cases), Italy (69,100+ cases), United States (59,500+ cases), Spain (47,600+ cases), Germany (31,500+ cases), Iran (27,000+ cases), and France (22,300+ cases).
Photo by sammy joonhee on Unsplash
Image from the Center for Disease Control and Prevention media library
There are at least four types of coronaviruses that cause illnesses ranging from the common cold to other more serious infections like the Severe Acute Respiratory Syndrome (SARS) that circulated in China in 2003, sickened 8,098 people, and killed 774. The Middle East Respiratory Syndrome (MERS), first reported in Saudi Arabia in 2012, was found to also be caused by the coronavirus. The coronavirus as we know it today has been dubbed Covid-19.
Coronaviruses are zoonotic, meaning they spread between animals and people. However, because the “wet market” was shut down and disinfected following the initial outbreaks of the illness, it was nearly impossible to investigate which animal may have been the exact origin.
Bad influence: China’s economy stalls
Wuhan, a metropolitan city with a population of 11.08 million, makes up more than 1 percent of China’s gross domestic product ($224 billion in 2018), making it an important economic hub.
The impact of the coronavirus had severe effects on the Wuhan economy. After the initial outbreak of the virus, seven Chinese movie premieres were cancelled and more than 400 Haidilao hot pot restaurants, 17 Uniqlo stores, and two Disneylands were shut down indefinitely. In a more formal response, the government declared a three-day holiday. Eventually, the government implemented more serious measures such as quarantines and curfews. Now, China’s economy is growing at a slower pace: according to MarketWatch, GDP growth has been roughly 6 percent, compared to 10 percent in 2003.
Photo by Macau Photo Agency on Unsplash
Shehzad H. Qazi, the managing director of China Beige Book (a provider of large-scale private data on the Chinese economy) warns: “The most frightening aspect of the crisis is not the short-term economic damage it is causing, but the potential long-lasting disruption to supply chains,” he said. “Chinese auto manufacturers and chemical plants have reported more closures, while shipping and logistics companies have also announced higher closure rates than the national average.”
Neutral influence: limited effect on growth rate
China now has bigger and more sophisticated tools to fight an economic decline than it did when it battled the SARS outbreak in 2003. Arguably, China is now providing necessary infrastructure updates, fighting against misinformation, opening virtual schools and offices, and sharing tech solutions. The problem now, however, is a worsening backdrop both domestically and abroad, and how both hamper the effectiveness of government's initiatives to respond. China makes up a much larger share of the world economy than it did in 2003.
Now, companies like Apple, Nike and other manufacturers and companies around the world are admitting they are feeling the negative economic effects of the virus. Famous fashion brands in particular, which depend heavily on Chinese buyers, are also taking a hit. Amazon sellers who often rely on cheap Chinese items are getting pummeled, with dwindling stocks to sell.
According to MarketWatch, the best estimate is that the virus will have a slightly negative or nearly neutral economic impact. There is likely to be only a limited effect on the growth rate of China’s economy in 2020, with perhaps a decline of 0.1 percent of gross domestic product. This prediction is based on previous experiences with the SARS virus in 2003: first there was a large decline in China’s GDP growth in the second quarter of the year that was then largely offset by higher growth in the following two quarters. However, the growth rate for all of 2003 was about 10 percent; many investment banks’ economists overestimated the epidemic’s negative impact on China’s GDP growth. Looking at annual real GDP growth rates from 2000 to 2006, it is difficult to see the effect of SARS in the data.
However, some fear that the timing of the coronavirus outbreak — at the start of the week-long Chinese New Year celebration, and in the middle of traditional school-break travels — would have exacerbated the economic fallout by keeping many people away from shops, restaurants, and travel hubs. There are some digital factors, though, that have been able to limit the impact of the coronavirus: internet shopping, replacement trips for already booked holidays, and the already free days that come with the Chinese New Year that ensures government and private structures will already be closed.
Photo by Macau Photo Agency on Unsplash
Reports have also indicated that COVID-19 is less deadly than the SARS virus. The fatality rate of COVID-19 has not yet been determined, but it seems to be around 2 percent so far. Whereas the SARS fatality rate was 9.6 percent. Chinese authorities quickly implemented
travel lock-downs which significantly slowed down the spread of the disease. Arguably, the Chinese government was quicker than it was in 2003 in controlling the spread of the virus.
Wall Street is convinced that China’s economy will bounce back around the end of the first quarter (at the beginning of April) as this is when the spread of the coronavirus is expected to decline. China will then experience a quick fall in economic activity followed by a return to its normal pace soon after.
Positive influence: hope for China’s economy
The consequences of SARS in 2003, the Mexican swine flu in 2009, African Ebola in 2014, and the Zika virus in Brazil in 2016 all show that regional or country indexes declined 4.7 percent on average. In about a month however, after they reached a low, the indexes of each country increased 12.3 percent, and after three months there was already an increase of 23.1 percent. The MSCI Index, provides clear statistical data: during the SARS epidemic, index MSCI China dropped to 8.6% and after that it increased to 14.7% in a month.
Although the immediate effects of the COVID-19 virus outbreak seem to be predominantly negative, scholars and economists are still unclear what the end effects of the virus will be on the Chinese economy. As previous outbreaks of different viruses and diseases in other parts of the world have shown, there is still potential for the economy of China to bounce back. It is only a matter of time until we can see the full impact of the Coronavirus.
__________________________
Yelizaveta Andakulova
Contributing Writer
Yelizaveta Andakulova is an International Relations graduate student at Webster Vienna Private University. Her research interests include EU foreign and defense policies and diplomacy. She enjoys living in Vienna where she has the opportunity to savor different musical and cinema events, as well as centuries-old architecture.