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What does the coronavirus mean for China's economy? | CNBC Explains - YouTube
Channel: CNBC International
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In 2018, Microsoft co-founder Bill
Gates gave an ominous warning
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that, “The world needs to prepare
for pandemics in the same serious
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way it prepares for war.”
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Two years later, an outbreak of
a coronavirus in Wuhan, China,
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gripped the world as the death toll
and infection count grew by the day.
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The first string of infections was reported
to the World Health Organization’s
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China office on the last day of 2019.
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"Declaring a public health emergency
of international concern."
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The international agency then declared
a global emergency a month later.
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The rare designation allows it to mobilize
financial and political support to contain
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the virus’ spread. Less than two
months after it was first reported,
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the virus had infected more
than 75,000 people worldwide
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and killed more than 2,000.
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So, what happens when a
completely unforeseen event
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shocks the world’s second largest economy?
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The disease, which is now officially called
COVID-19, appears to have originated from
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a seafood market in Wuhan, China,
where wild animals were illegally traded.
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To date, at least 25 countries have reported
cases of COVID-19, including the U.S., U.K.,
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India, Japan and Singapore.
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However, despite its spread, the WHO still
considers the new coronavirus an epidemic
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and not a pandemic, which is defined as an
ongoing epidemic on two or more continents.
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The timing of the outbreak was a
double whammy for China’s economy.
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The country was in the midst of an ongoing
trade war with the United States
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that was already slowing down growth.
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It also took hold before the busy
Lunar New Year travel season,
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when hundreds of millions of people
normally travel home to celebrate
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with their families.
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At least 10 Chinese cities were locked
down in late January as authorities
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attempted to contain the new virus,
leading to the cancellation of flights,
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events and the closure of venues.
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So, how exactly has business
been impacted in China?
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Businesses across the nation were
already winding down operations
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in the lead up to the Lunar New Year
holiday, which lasts for a week.
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But that closure was extended
in the wake of the outbreak.
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This affected restaurants and stores, too as
the government discouraged mass gatherings.
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Businesses and factories in at
least 24 provinces, municipalities
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and other regions were told not to resume
work until February 10 at the earliest.
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Together, these hubs account for more than
80% of China’s GDP and 90% of its exports.
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At the same time, thousands of flights
from more than 50 airlines including Delta
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and British Airways were cancelled, as governments
imposed travel restrictions to and from China.
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Domestic rail trips plummeted more than 75%,
while its tourism industry is in a tailspin
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as the Chinese stay home and
foreigners avoid the country.
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Even in Disneyland, the nightmare is
creeping in as its theme parks in Shanghai
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and Hong Kong were closed.
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Disney warned it's expecting to take a $175
million hit if the parks stay closed for two months.
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China’s box office, meanwhile, which is
highly lucrative for Hollywood,
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took an estimated $210 million
beating on what was expected
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to be a gangbuster weekend.
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All seven films scheduled for release over
the Lunar New Year holiday announced they
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were pulling screenings.
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In fact, China’s box office revenues
plunged to less than $4 million this
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year from $1.5 billion last year
over the same 20-day period,
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commencing on the eve
of the Lunar New Year.
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And it’s not just the consumer landscape
that has been severely disrupted.
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The fallout from the virus has essentially
isolated the world’s largest population
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from the rest of the world, disrupting worldwide
trade and supply chains in the process.
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In the weeks following January 20th, ship
activity at China’s major ports fell 20%.
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Even oil prices have fallen as
demand weakens in China,
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the world’s largest importer of oil.
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Automakers from Nissan to Honda and
American giants Apple and Nike all have
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massive operations in China
that have been impacted as well.
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To understand the magnitude of COVID-19, it
might be useful to look back at the SARS outbreak
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17 years ago, which infected more than
8,000 people worldwide and caused
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nearly 800 deaths.
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COVID-19 and SARS come from
the same family of coronavirus.
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But the number of COVID-19 cases
has quickly outpaced SARS.
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This graph, which shows
the 30 days following the
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WHO’s first reports on the outbreaks,
shows the dramatic difference.
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However, despite already clocking
more deaths than SARS,
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initial figures from the government
suggest that of the total confirmed cases
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in China, between 2-3% have died. The WHO placed
China’s case fatality ratio for SARS at 7%.
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From the first to second quarter
in 2003, China’s real GDP growth
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plunged by 2 percentage
points as a result of SARS.
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And growth in China slowed from 8%
year-on-year to 5% during the outbreak.
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But one major thing is different now.
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China’s economy in 2003 during the SARS
outbreak was much smaller than what it is today.
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Just look at how China’s economy has grown.
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It made up about four percent of
global GDP in 2003.
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That’s grown to more than
15 percent in these 17 years.
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China’s annual economic output has surged
from $1.7 trillion to nearly $14 trillion,
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while its economic output per person has gone
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from nearly $1,300 in 2003,
to more than $9,000 in 2018.
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China has also been the world’s largest
exporter for more than a decade, with many
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countries such as Japan and Vietnam
very reliant on the Chinese supply chain.
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China is much more intertwined to the world
economy than ever before.
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Because of this, the global economy – not
just China – will feel the impact of the virus.
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While it’s too early to know exactly how
dramatically China’s economy will be impacted,
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economists and companies alike have
sounded multiple warning bells.
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One IHS Markit report summed it up well, saying:
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In 2019, China’s economy grew just 6.1
percent thanks in part to the trade war.
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It was the country’s weakest
growth in nearly 30 years.
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Still, as a result of the virus,
numerous banks and research
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houses have downgraded China’s GDP growth
forecast for 2020. Some have even warned
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that China’s economy could enter a technical
recession – that’s defined as two back-to-back
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quarters of negative growth. And some
even worry it could spread globally.
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China’s government has poured billions of
dollars into the financial system as it
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attempts to restore investor confidence and
minimize the economic fallout, among a slew
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of emergency measures.To minimize
job losses, the government is
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expected to approve tax relief and subsidies
for sectors that have been impacted by the
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virus. And China’s central bank announced
measures aimed at lowering borrowing costs
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and easing financial strains on affected industries.
However, some analysts remain unconvinced
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that Beijing’s monetary and fiscal policy
measures will work in the near-term.
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As the outbreak unexpectedly upended
normal business operations across China,
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its overall impact on the economy is likely
to be analyzed for decades to come.
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