The Real Impact of Coronavirus on China’s Economy

The economic cost of the coronavirus epidemic is now apparent in China and its surroundings. Wuhan, Hubei and surrounding regions are preventing business-related travel as well as trading and the movement of goods.

Workers are staying home and most people are avoiding outdoor activities that they think would expose them to a risk of getting infected.

That means restaurants, transportation services, trading companies, tourist sites, and even hotels are losing money in sales. Local authorities in most jurisdictions have sent notices to businesses in the area and are preventing people from gathering in concentrations in one spot.

As we previously covered, the outbreak happened during the Chinese New Year (Spring Festival) causing significant economic losses to businesses of those categories. This time of the year is usually the busiest since most Chinese workers get to go home and celebrate for the new year.

Global Shipping, Too, Hit By the Outbreak

According to BBC, most trading and logistics companies that export goods from China have reduced the number of shipments they make. This was done to prevent the spread of the virus, as several local authorities also put restrictions on these shipment providers.

According to the United Nations Conference on Trade and Development, China has seven out of 10 of the world’s busiest container ports. Shipping providers cutting back on seaborne vessels in China will threaten global supply chains.

“A closure of the world’s manufacturing hub impacts container shipping at large, as it is a vital facilitator of the intra-Asian and global supply chains,” said Peter Sand, chief shipping analyst at BIMCO. “This will affect many industries and limit demand for containerized goods transport,”

This goes to show that the impact is not just in China, many others will be affected. International companies like Starbucks closed down their outlets, a number of overseas airlines are not flying to China anymore, and companies are still paying salaries even though the government extended the holidays.

Are these signs of long-term business problems? Researchers still think that these impacts will only be short-lived.

When Does it End?

China is much more important than it was 10 or some 15 years ago back when the previous SARS epidemic happened.

The country exports the bulk of the electronics, smartphone hardware, computer parts, automotive parts, construction equipment, and directly affects many other industries.

International supply chains are at a greater risk. Stock markets in China fell 8% on the first day after the Spring Festival holidays. Copper went down 15% in value. Hyundai, after facing supply chain issues, closed down its production which hints towards greater problems later on.

However, all of these cutbacks and losses are directly related to how in-control the government is to the entire coronavirus situation. Researchers still believe that these effects will start receding after the first quarter of 2020 – which is basically the lifecycle of the epidemic itself.

Trade & Business Should Continue

Earlier in February, the WHO director-general said that “there is no reason to take unnecessary measures to interfere with international travel and trade”.

China received greater damage from the prevention of the disease than the disease itself. According to reports, the government will be implementing newer policies to prevent further problems. Recently, it announced newer tax incentives for foreign investors.

Furthermore, the first wholly foreign-owned insurance company was also incorporated in China recently – in an industry that was completely restricted for non-Chinese entities before. The Chinese government is on a roll to open up to foreign investment while at the same time, it works to put the entire outbreak in control.

It is clear that unless the spread of the coronavirus is controlled, there will be long-term economic consequences that might produce a greater set of problems.

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