Corona Virus in China
By Asif Haroon Raja
Outbreak of coronavirus in Wuhan
Wuhan city, capital of Hubei Province in China with a population of 11 million people and one of the 10 largest cities in China, was suddenly struck by a deadly virus called Corona. 11 cities in the near vicinity of Wuhan got affected the most by the virus and have been closed. Death toll has soared to 490, with 24,300 infected by virus across China, and 185000 under observation. 16 cities of China comprising 50 million people have been locked down as a safety measure to prevent the disease from spreading further.
The virus has become a nightmare for China and is sucking the life out of thriving China. If it is not controlled in a short period, it could shatter the dream of China to become the world largest economy. Presently its economy is trailing behind USA only and is well poised to take the lead. In its bid to grapple with the Corona virus on war footing and eliminate it, China may be compelled to cut down taxes, increase expenditure, and lower interest rates to offset ill-effects of the virus.
Impact of coronavirus on China’s economy
Production of electric cars and solar manufacturing by the US Company Tessa in Shanghai have stopped. General Motors, Toyota and Hyundai have delayed their productions till the return of workers from Lunar New Year holidays, which have been extended. Ford Motors factories are idling. Restrictions imposed on movement of employees of Apple Company which assembles most of its products in China is closing 42 stores in Wuhan. The US Real Estate Company “The Work” has closed over 50 offices. Starbucks and multi-national Company IKEA have closed all the stores in China. Pizza Hut, KFC have shut thousands of its branches while McDonald has closed its outlet in five cities in Hubei province.
Disney World has shut its parks in Shanghai and Hong Kong. Walmart with 430 stores in China has reduced work hours at some stores. International airlines like US Delta, Lufthansa and British Airways have canceled flights to China, while the US and many other countries have advised their people not to travel to China. Banks like Goldman Sachs, JP Morgan and Chase have also directed their employees to stay home for some time. Adidas Sportswear Company with 12000 outlets in China has temporarily closed considerable numbers of stores. Toy industry in China is also likely to suffer.
Isolation of big population centres has impacted the tourism industry. Prominent Travel Agencies and hotels are offering refund money to those who had done advance booking for February. Winter vacation celebrations and Lunar New Year celebrations have been cancelled and major tourism spots closed. Release of block buster films during the holiday season have also been deferred, which has caused a heavy loss to film industry. IMAX Film Company based in Toronto has postponed release of five films that were to be displayed during holiday break.
China’s 290 million workers will be worst affected. Majority of them travel from far flung rural areas daily to urban centers to work in factories or to earn daily labor wages. They are presently on New Year holidays and will have to stay at home due to closure of factories in the virus prone regions. It is feared that unemployment in China which is currently at 4-5%, would further fall down. Prices of food items are likely to soar.
Economists foresee a drop of 2% in China’s GDP resulting in loss of $ 62 billion. This heavy jolt could make China’s flourishing economy anemic. China’s growth rate had slid down last year from over 11% to 6.1%, and was the lowest in the last three decades. It is likely to slip to 5.6% this year. Reason was the US trade sanctions and tariffs on China’s goods in 2018/19. Trade war impelled multi-national companies to shift from China to other countries such as Vietnam to avoid US tariff. Other reasons were increasing foreign debts owing to largescale development works in Western China, gigantic OBOR project, and modernization of Chinese armed forces. Shares in China fell by 8%.
China’s economists visualize that if this virus remain in vogue till March this year, the economy will suffer a loss of 5%.
Power is centralized in a huge bureaucracy that emanates from the national Communist Party in Beijing. The latter has appointed the prime minister as head of the anti-virus campaign which is an indication that Beijing see this challenge as the top most national issue.
There is a fascinating mix of calm and fear in China. Everything the media broadcasts or the government does centers around Corona Virus. Early on, the government was criticized for its slow response to the disease. But now, its response has swung into action and is putting in its heart and soul to combat the virus. Preventive measures have been taken which include:
• Buses and trains crossing provincial lines in over half of China’s provinces have been canceled.
• Movie theaters, museums and other enclosed public spaces have been ordered to be closed.
• Wuhan and other cities in the province of Hubei have prevented their locals from leaving. Sealing of cities is not easy, but having done it speaks of the strength of the state.
Unlike screaming headlines in the newspapers of the world and social media going bloopers in sensationalizing the virus crisis, the media in China has taken things calmly and coolly. What were flashed in the newspapers were Xi Jinping giving four keys to win the fight against the virus: “Firmly believe/have confidence in the government”; “Cooperate”; “Use scientific disease control methods; “Apply targeted government policies.” To encourage people and to inject patriotism, one of the sub headline was in the newspapers was: “Thanks to ‘socialism’ with Chinese characteristics’, they’ve built two hospitals in Huoshensan and Leishensan in six days, more are under construction. Thousands of doctors have been dispatched to Wuhan, which has been sterilized, and are coordinating scientific research”. “Prevention and control of the new coronavirus is the most important thing for us right now.”
Likewise, TV news aims to strike the right balance between alarm and assurance. While reporting the infected cases, the patients that have been treated and released were also reported. Wholesale markets with full stock of food items were splashed. Symptoms and preventive measures to fight the virus are explained. Infrared thermometers have been placed at nodal points to detect the virus and masks are being used extensively.
An amount of $12-16 billion has been allocated for the treatment of affecters, to build hospitals, import necessary equipment and for health research work. Big banks are giving loans on low interest rate to the affected families to help them in undertaking small scale businesses. Bank of China has announced that it will keep extending loans to the most affected cities of Hubei province for several months. China plans to inject $ 22 billion to shore up money markets.
China’s contributions in global economy
China with the population of 1.4 billion is the biggest manufacturer of the world and is second to none in crude oil reserves. Chinese tourists are among the top spenders in world tourism. They undertook 150 million tours in 2018 and spent $ 277 billion.
China’s importance in global economy has grown exponentially and is among the world largest traders and its merchandise is imported by almost all the countries due to its low-value products like clothing, plastic goods. China has gained monopoly in smart phones, computers and auto parts. USA, Japan and India and many others are the biggest importers of Chinese goods. Brazil is the biggest exporter of its goods to China. Its economy is export oriented, and its annual economic output has multiplied to about $ 14 trillion from 1.7 trillion in 2003. Its share in global trade doubled to 12.8 % in 2019 from 5.3 %.
China accounts for one-third (20%) of global economic growth, and is also a massive consumer market. Being at the heart of many global supply chains, slowed down growth and imports/exports will have serious effects on the global trade. Asia-Pacific region will be the first to suffer the consequences.
Chairman US Federal Reserve Bank Powell stated that ‘China’s economy is very important for the global economy and that decline in Chinese economy has a direct bearing upon the world economy’.
Countries affected by virus
It is not only China but several other countries where cases of Corona virus have been detected. These include, USA (11 cases), Latin America, EU, Central Asia, ASEAN, South Asia, Africa, and Middle East. 25 countries have confirmed cases. One death each has occurred in Hong Kong and Philippines. 3600 persons returning from China have been quarantined by Hong Kong. 350 Americans have been airlifted from Wuhan and are currently secluded at California airbase for 14 days.10 infected cases detected on board cruise ship have also been isolated off Japan. Tokyo is worried about the fate of Olympics which it will host in July this year.
Impact on Global economy
The coronavirus will have a huge negative impact on China’s economy, but other countries that are in business with China will also get affected. It has slowed the global growth to 2.9% this year.
The world trading centres have been shaken to their roots by the virus and economic strains in China. The investors have begun to invest their amounts in US dollars, Japanese Yen and gold. Preventive measures taken by China have declined its demand for oil and other supplies. It has in turn brought down prices of oil and items.
Countries trading with China including EU would not remain unaffected. Effects are already discernible as in the cases of stock market and bond market that have plunged. Brent’s crude oil trade has slumped from $ 55 a barrel to $10. OPEC is planning to cut down oil production by 2 million barrels per day to avoid surplus.
If not controlled, Corona virus will disrupt China’s supply chain stretching from Mexico to Malaysia and will throw a spanner in the industrial growth of South Korea, Japan and Germany and will impact the global economy.
Surge in prices in China will hit hard Pakistan’s manufacturing sector which imports raw material from China. This factor together with possible rise in oil price will further shoot up inflation and price hike in Pakistan. Virus will also have an impact on thousands of Chinese work force employed in CPEC projects who are presently on vacations and have delayed their return.
Despite the health hazards of the coronavirus, the economic impact and drastic reduction in tourism, other than Wuhan, life goes on as usual in other parts of China. Families are still enjoying Chinese New Year together at home, flying kites in the park, shopping at Walmart, and eating at McDonald’s. In a cool and methodical manner, China is on its way to control this menace, and is confident that it will be able to control it as it had done against 2002 SARS virus, which was quickly overcome in 2003.
China has claimed that its Zhejiang University has invented an effective drug to cure the disease which will be in the market soon and marketed to other countries. Talk of a vaccine is in the air. WHO has however stated that so far there is no effective treatment to cure the disease! Rumor mongering and conspiracy theories are in circulation about which I will discuss in my next article.
The writer is a retired Brig Gen, war veteran, defence, security and political analyst, columnist, author of five books, Chairman Thinkers Forum Pakistan, Director Measac Research Centre, Member CWC and Think Tank PESS. firstname.lastname@example.org