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