Coronavirus impact on Q1 economy bigger than SARS

Tourism, consumption, transport hardest hit

The coronavirus outbreak could deal a heavier blow to the Chinese economy than the Severe Acute Respiratory Syndrome (SARS) from almost two decades ago, weighing up to 2 percentage points on China’s Q1 GDP growth for 2020 due to a steep decline in consumption, a key driver for the Chinese economy, said industry insiders and observers.

Service industry sectors, including tourism, transportation, restaurant and retail will be the first to reel from the impact. As Chinese authorities have extended the Spring Festival holidays to February 2 and with factories having delayed work in an effort to stop the virus from spreading, the new epidemic will take a chunk out of the nation’s manufacturing industry and disrupt the global supply chain.

“I’m anxious and worried. This is a battle for survival, but I’m losing territory,” a manager of a small robotics company in Shenzhen, Guangdong Province surnamed Yang told the Global Times.

Yang’s factory employs about 500 people, but has suspended operations due to concerns over the spread of the coronavirus. Yang does not have a date when his factory will resume operations and said it depends on when the epidemic will be under control.

“Our spending, mostly in factory rental costs and employee salaries, is amplifying day by day. But we don’t have an income source. If production does not resume before mid-February, direct and indirect economic losses could be in the millions of yuan,” Yang said.

Across Guangdong, known as

China’s manufacturing base and trading hub, a mixed mood of sobriety and anxiety is spreading among entrepreneurs. Some pointed out that if the disruption is extended, many small- and medium-sized manufacturers would be mired in a capital crunch and could even face bankruptcy.

The Global Times learned that many Guangdong factories will resume operations on February 10, which industry insiders said was due to an order from the Guangdong government mandating that companies not begin production before that date.

Exports could also experience setbacks from a production slowdown.

The manager said the uncertainty over the volume of electronic component shipments could also make the firm fail to catch up with orders from India, Southeast Asia, Japan, and South Korea – its main export destinations – in the short term.

Chen Lianjie, general manager of the Zhejiang-based KANGLIDI Medical Articles which makes medical products, told the Global Times the firm has had difficulty in meeting export orders, which were placed last year, due to a lack of raw materials and employees.

Chen’s factory resumed production on Spring Festival Eve as domestic demand soared, with production capacity reaching its largest daily output of 40,000 masks.

Waning consumption

Spring Festival is traditionally a peak holiday travel time, during which Chinese make inbound and outbound trips and embark on shopping sprees, providing a robust stimulus to the nation’s economic output at the beginning of the year.

This year, as Chinese authorities imposed travel restrictions and millions of Chinese canceled travel plans in an effort to combat the epidemic, the contribution of consumption to the Chinese economy is likely to wane significantly, industry insiders said.

Xu Xiaolei, marketing manager of CYTS Tours, said the number of travelers who booked trips on the platform plunged to almost zero on Wednesday.

“Consumption-related industries received a great shock due to the virus, with the consumption growth rate during this Spring Festival dropping to negative 3 to 5 percent,” said Tian Yun, vice director of the Beijing Economic Operation Association. By comparison, China’s consumption growth for the festival season in previous years was in the double digits.

Some analysts predicted the impact of the coronavirus could be bigger than SARS in the short term, as consumption contributed 57.8 percent to China’s GDP growth last year compared to a 37 percent contribution rate since 2003.

Tian estimated that China’s GDP growth in the first quarter may drop by 1 or 2 percent.

During Q2 2003, when SARS hit, China’s real GDP growth plunged by almost 2 percentage points to 7.9 percent due to subdued demand in consumption and reduced transportation. But it rebounded in Q3 and Q4 as consumption revived, driving the annual GDP growth rate to 9.9 percent in 2003.