Coronavirus: The Economic Impact

by Chelsea Liu

The declaration of a global health emergency by the WHO of the coronavirus (2019-nCoV) has now officially alerted the worldwide community. Originating from the Huanan fish market in Wuhan city, this virus has affected not only the citizens of Hubei province, but has also not ceased its potential to become a pandemic. Due to the country’s ongoing economic downturn and the significant timing during the Spring Festival of this outbreak, China’s economy may suffer more than what it endured during the surge of SARS in 2003 which can have detrimental impacts on the global economy considering the substantial role China plays in it.

From a macroeconomic level, there will inevitably be a decrease in productivity, demand and exports. One major reason for the reduction in production is the Spring Festival. At the end of January, most Chinese families will reunite during the spring festival holidays in order to celebrate the Chinese New Year (CNY) on the traditional Chinese calendar. It causes most workers to leave the city where they work in and travel across the country to their hometown. What this leads to, along with the extended holiday from the 30th January to the 2nd February, is a haul in production, manufacturing, infrastructure investment and real estates almost completely as workers are absent from worksites. The restriction in mobility could also lead to less consumption primarily causing short term cyclical unemployment and price inflation. Foreign demand will also be affected as of the reluctancy to invest and a decrease in exports when countries rethink the conditions for the entry of commodities from a disease-infected country recognised by the WHO to be a global health emergency.

 

The tertiary sector will probably be the most impaired compared to the primary and secondary sectors with a more prolonged effect especially in entertainment, tourism and catering industries. Normally, the CNY, Labourers Day and the Chinese National Day are the three holidays in which there is a boom in the tertiary sector. Ren Zeping, a post-doctor of Economic Management from Tsinghua University and the Chief Economist at the second largest property developer by sales in China (EverGrande), has analysed: compared to that of 2019’s CNY holiday with a box-office revenue of 6 billion RMB, retail and catering revenue of 1 trillion RMB and 513 billion RMB in tourism, 2020’s CNY holiday is forecasted a loss of 7 billion RMB, 500 billion RMB assuming a severe backlash and 500 billion RMB assuming a complete freeze respectively of the three industries alone. This sums to a total loss of over 1 trillion RMB, equivalent to about 110 billion GBP, in the event of the 7 days of holiday. If were to account for other industries and a long term effect, the GDP in the first quarter of 2020 may go below 5.0%, as if below 6.0% was not harmful enough, putting the Chinese economy, which has been on the downturn for the past decade, into deeper waters.

However, the experience of government economic policy responses from the epidemic of SARS will greatly benefit the speed and accuracy of response this time round. For example, the implementation of expansionary fiscal and monetary policy through grants and subsidies to firms, cuts in tax rates and low-interest loans.

Looking on a microeconomic level, the extent to which various organisations and businesses are affected will be different. For example, private sectors will suffer more than public sectors as they are financially weaker to withhold such conditions; small business organisations including sun-rise and sun-set companies as well as sole traders or partnerships will be exposed to more liability; and farmers will be subject to more harm such as seasonal unemployment than regular employees who are relatively more stable. Above all, contract breaches, difficulties in cash flow and the prospect of insolvency for some will be inevitable.

On the other hand, some industries have benefited from this, for example online gaming  and the medical field. One prevalent mobile game “King of Glory” had reached a single day running account record of 2 billion RMB on the Lunar New Year’s Eve of 2020 (24th of January 2020 on the Gregorian calendar)  compared to 1.3 billion RMB on the Lunar New Year’s Eve of 2019 (4th of February 2019 on the Gregorian calendar) according to Ren Zeping. This online tendency may take China on a discovery pathway to new industry formats. The phenomenon seen in the medical and medicinal field is self-explanatory as government sectors and hospitals work hard to fight the virus.

Education will also be seriously affected by the 2019-nCoV, an issue I personally am concerned about the most after the well-being of the population. As in proximity of the 2020 university entry examinations, the next few months will be a tough time for students nationwide as they prepare within the fear of also the coronavirus especially for those studying in Wuhan. Had one left Hubei province for the celebration of the CNY back home, they will for the time-being not be able to enter the province again due to the imposed transportation quarantine. It most certainly will affect the reopening time of schools for the new semester potentially leading to online lessons as a way  for teachers to solve the problem. This type of learning will notably be less effective than that of all in one single classroom where there is clear communication between the teacher and students. Another issue in the near future is the implementation of the examinations themselves if the coronavirus is still not resolved. Whether they will continue as normal or be rescheduled. There is a chance that some students may even not take part to evade the risk of being infected sitting in a room full of other people. Either way, this cohort will be acutely distressed by the coronavirus. More generally, this semester will probably start off with mayhem as the provincial education systems hurriedly look towards ways to deal with the virus and some parents informing the absence of their children from going to school to reduce the risk of being infected. This may lead to a lack of human resources when this generation becomes the main economically active working force and the problem of the ageing population will become an even larger burden for them as well as the government to bear.

Overall, the Chinese economy does not look optimistic as a result of the economic impact the 2019-nCoV will cause nationally and internationally. Compared to that of SARS nearly two decades ago, this new outbreak arrived at a double-bad time: during the economy’s most promising CNY holiday and at a time when pressures of the economic downturn are high. However, 2019-nCoV does seem to be socially less harmful due to the generous donations into hospitals, lower death rate, government and medical familiarity with working under such conditions, technological advancements in the medical and medicinal field as well as the greater initiative from Xi Jinping to put health first which will all greatly aid the acceleration of stopping the virus.