Effects beyond illnesses
China’s virus outbreak likely to hurt economies in Asia, beyond
This should be peak season for a 12-room hotel near the train station in the Chinese industrial hub of Wuhan. The Chinese New Year usually brings in plenty of travelers and delivers profits of around $3,000 a month. But the hotel is empty because Wuhan, the center of a deadly viral outbreak, is on lockdown.
“There is not a single customer,’’ said the hotel’s owner, who gave only his surname, Cui. He still has to pay rent and his utility bills. Instead of counting his earnings, he’s expecting to lose $1,500 a month.
The outbreak arrives at a bad time for Wuhan, China and the world economy. China's economy, the second-largest in the world, was decelerating even before the coronavirus hit. And the world economy is coping with an unexpectedly sharp slowdown in No. 7 India, prompting the International Monetary Fund last week to downgrade its outlook for global growth this year.
The coronavirus is drawing comparisons to the SARS outbreak, which paralyzed the economies of China and Hong Kong for weeks in 2003. But what happens in China carries a lot more weight these days: In 2003, China accounted for 4% of global output.
Now its share is 16%, according to the World Bank.
“A growth slowdown in China could have sizable ripple effects across Asia and the rest of the world, given the size of China’s economy and its role as the key driver of global growth in recent years,” said Eswar Prasad, a Cornell University economist and former head of the International Monetary Fund's China division.
Authorities are still trying to better understand the new virus. It is from the coronavirus family, which also can cause the common cold as well as more serious illnesses such as SARS. China has confirmed more than 4,500 coronavirus cases and more than 100 deaths.
The Chinese government has locked down Wuhan and 16 other cities in Hubei province, isolating more than 50 million people. The outbreak has brought everyday business to a standstill and led to the shutdown of such popular tourist attractions as Beijing's former imperial palace, Shanghai Disneyland, Hong Kong Disneyland and the city's Ocean Park. The significant decline in travel has caused United Airlines to suspend some flights to Beijing, Hong Kong and Shanghai, the airline said.
The SARS experience offers some reason for economic optimism. That outbreak, centered in southern China, initially disrupted the Chinese economy. In the April-june quarter of 2003, China’s economic growth dropped to an annual rate of 9.1% from 11.1% the previous quarter, noted economists Tommy Wu and Priyanka Kishore of Oxford Economics. But as the health crisis subsided, growth recovered to a 10% annual rate in the second half of the year.
“From what we know, it’s likely to be similar this time," said Andy Rothman, investment strategist at Matthews Asia. “People shouldn’t get panicked that growth is going to slow sharply" over a sustained period.
Still, the Chinese economy isn’t the dynamo it was in the early and mid-2000s when growth routinely hit double-digit percentages.
The IMF expects China’s growth to drop from 6.1% in 2019 — already the slowest since 1990 — to 6% this year and 5.8% in 2021. The slowdown reflects China’s difficult transition from fast but unsustainable growth built around often-wasteful investments to steadier but less-striking growth built on consumer spending by the country’s growing middle class.
There has been no immediate impact on China’s vast manufacturing industries because factories already were closed for the Lunar New Year holiday and weren’t due to reopen until this week or later.
“I think the first quarter looks like it will take quite a significant hit,” said Rajiv Biswas, chief Asia economist for IHS Markit.
Further delays in restarting production could send shock waves through Asian suppliers of components and exporters of iron ore, copper and other commodities as far away as Australia, Brazil and Africa.
The impact in other developing Asian countries might reduce their 2020 economic growth by 1.5 to 2 percentage points, according to a forecast by Edward Glossop of Capital Economics.
Japanese Economy Minister Yasutoshi Nishimura told reporters Tuesday that Japanese exports, production and corporate profits could be pinched by the new virus. A more direct hit is already coming from the decline in tourist traffic from China. Nishimura said that Chinese travelers usually account for about a third of tourists from abroad, and they tend to be relatively big spenders in Japan.