The economic extent of nCoV

THE novel coronavirus (nCoV) that is currently pummeling China and 28 countries around the globe is raising a lot of questions on the world’s economic stability, and among individual economies. The concern is primarily because China is the world’s largest tourism market, and is the largest producer of manufactured products in the world.

As of 2018, the number of outbound Chinese tourists is about 150 million. Excluding its administrative regions and Taiwan, the following countries are the top 10 tourist destinations of the Chinese (in terms of percentage to total)—Thailand (7 percent), Japan (5 percent), South Korea (2 percent), Vietnam (3 percent), the United States, Singapore (2 percent), France, Malaysia (2 percent), Germany and Indonesia. The average expenditure per tourist is $3,150 per capita in 2017. The total external tourism spending of the Chinese is about $280 billion with the US, a far second with $144 billion. These Chinese tourists also prioritizes shopping (25 percent), accommodations (19 percent) and dining (16 percent) for their spending. This is only outbound tourism, domestic tourism is much larger reaching 5 billion trips in 2018. With the current lockdown of a number of cities in China, about 10 percent of China’s GDP is at risk, together with approximately 28 million jobs.

The Unctad ranks China as the largest manufacturing output producer in the world. It said 27 percent of its national output is manufacturing, and this represents 20 percent of global manufacturing output. About 128 million Chinese, representing 17 percent of its work force, are working in the manufacturing sector. With areas around Wuhan on lockdown, major international manufacturing companies are also closed. Wuhan is the home of the Chinese steel industry, and is the Chinese manufacturing base of many auto companies, such as General Motors, Nissan and Honda. It is also a critical China hub for Renault, Peugeot, IBM, HSBC, Walmart, among others. The closure of these businesses have already resulted to a significant decline in China’s demand for oil, estimated to have fallen by 20 percent already. This is also the case with other commodities, such as copper.

Thus, for tourism and manufacturing alone, about 35 percent of China’s economy is at risk of a severe slowdown. Estimates by international banks suggest that about 2 percent of growth will be lost for the first quarter, making China’s potential growth to max at 4 percent—this will be the slowest in more than two decades of growing above 6 percent. These estimates are conservative in the sense that we have yet to take into consideration the value chain impact on global logistics, which can be substantial.

The China factor is so large that it will affect every country in the world, even if there is no confirmed coronavirus in that country. The Philippines, with its size and its rising economic foundations, is as exposed with the virus as with the economic repercussions that will come with it. For instance, even if the Philippines is not part of the top 10 destinations of the Chinese tourists, they are the second-biggest tourist groups that entered the country in 2019. Approximately 1.8 million Chinese tourists entered the country, or roughly about 150,000 per month. Using the average tourism expenditure from the Department of Tourism of $150 a day, and average number of nights at 6.24, this translates to $936 per-capita spending or about $140 million per month. If the lockdown continues for the next

For tourism and manufacturing alone, about 35 percent of China’s economy is at risk of a severe slowdown. Estimates by international banks suggest that about 2 percent of growth will be lost for the first quarter, making China’s potential growth to max at 4 percent—this will be the slowest in more than two decades of growing above 6 percent. These estimates are conservative in the sense that we have yet to take into consideration the value chain impact on global logistics, which can be substantial.

two months (based on the airlines’ flight reopening), the country is going to lose conservatively about half a billion dollars from tourism receipts alone.

Manufacturing impact, on the other hand, is linked with the trade sector where the Philippines plays a major role in the global value chain. China is our largest trading partner where our combined total trade is about 15 percent—12 percent of exports and 18 percent of imports. The composition of Philippine imports to China is primarily industrial supply, capital goods and parts of capital goods (or approximately 70 percent of total), and about 13 percent is food and consumption goods. In turn, exports to China is 90 percent industrial supply, capital goods and its parts. We have a deficit of about $10 billion, with China. In value terms, our total trade with China is about $25 billion, or roughly the total value of OFW remittances. In the world of global value chains, our exports to China are mostly inputs for their manufacturing sector. If China facilities continue to close for another month, expect a significant impact to exports exposing as much as $6 billion. This is more worrisome since the export sector is also our local manufacturing base. As we have seen last year, the trade war already provided a glimpse of what a Chinese slowdown can do to our manufacturing and exports. Both slowed down and pulled investments with it too.

All told, these exposures to Chinese trade and tourism are part of the global value integration. We benefit and we also take risks with it. What is critical is that this virus be managed and controlled soon through a global coordinated approach, and a strong local support. The longer it lingers—it will expectedly pull with it sectors that are contributing to the inherent strength of the economy— trade, tourism, and even the OFWs. The second week of February will be critical as it is the end of the 14-day maximum incubation period of the virus from the start of the lockdown of Wuhan and Hubei provinces on January 23. If the number of infections start to fall, then we can say that the lockdown was successful, and we can expect to see a decline in infections soon. Let us hope and pray for the best and get our act together as a nation.