How Bad Is the Coronavirus Really for China’s Economy?

As the novel coronavirus 2019-nCov rages through China leaving vast parts of its massive economy paralyzed, the outside world is stocking up on surgical masks and calculating the damage that China’s nationwide quarantine could do globally. For one, it is clear that for most Chinese companies the first quarter of 2020 will feature a noticeable recess on their annual balance sheets, and since China still very much upholds its title as the world factory, that recess is bound to be felt way beyond the Great Wall. 

Over the last two decades China has become an intеgral part of the global supply chain, deeply involved in virtually all industries from fashion to technology. Companies dependent on Chinese factories for production have been forced to put their immediate plans on hold as the local manufacturing remains idle. 

What makes the situation even more complicated is the lack of any clear predictions on when the outbreak will be under control. Thus, the current estimations of possible domestic and global losses should not be regarded as any more than estimations. Experts are currently foreseeing a decline in China’s economic growth to roughly 5.6% from the already relatively low 6.1%, which will bring global economic growth down by 0.2%. While the precise figures are subject to change and slightly vary between reports, there is, however, a consensus that China’s economic growth is likely to stabilize by the end of the year. 

There is little doubt in that the Chinese grit that turned the country into the world’s second biggest economy in less time than it takes a child to hit puberty is going to help it push through the headwinds that it’s facing. However, for other countries, the prolonged Chinese quarantine could have more long-lasting effects, albeit not only negative ones. 

The Chinese are the number one travelers and spenders in the world, injecting considerable amounts of money into economies like Thailand, the favorite destination for middle class Chinese tourists. The Southeast Asian country is currently also fighting the spread of the virus and is considering closing its border with China, which will result in losses of approximately $1.5 billion. 

On the upside, however, China’s mishaps could also benefit the manufacturing industries of the rapidly evolving Southeast Asian economies like Vietnam, Indonesia and Thailand. As China’s labor costs rise, the region already attracts increasingly more international businesses looking to produce their wares cheaply. If the current standstill in China is not addressed shortly, even more companies could be tempted to give up their local contracts and move their manufacturing to Southeast Asia.

For China this could mean even further distancing from manufacturing-heavy industries and considerably more focus on advanced technologies, including health technologies and artificial intelligence.

Intensified manufacturing helped China rebound after the SARS crisis of 2003-2004 but quickly lost ground to the inward-looking service industry after the 2008 financial crisis, which currently puts the country in an even more vulnerable position, argues Alicia García-Herrero, the chief economist for the Asia-Pacific at the French bank Natixis in a comment to Foreign Policy. However, this could also boost China’s efforts to build a world-leading tech industry by forcing the local tech behemoths to further expand overseas and decrease their dependency on the domestic market.

It is arguably the small- and mid-size local enterprises that will be hit the hardest by the epidemic. For companies like that, two months of sluggish business could bring about imminent collapse. Unable to pay off their loans, afford rent, or pay wages to the workers who are staying home because of the prolonged holiday, some of these ventures will be forced to close.

For a vast population of Chinese migrant workers, however, this is in part an opportunity. Factory owners are desperately seeking to bolster their workforces. Those who are not afraid of the virus and are willing to work through these hard times can expect favorable contracts. Some factory owners are forced to pay up to 1.5 times more than usual to attract people under the current conditions. 

The amount of buzz surrounding the outbreak has also benefited the sales of the popular cold medicine in China, Shuang Huang Lian, which has been rumored but not confirmed to be effective against the virus. Internet users joke that even the sales of double-yolk lotus seed (Shuang Huang Lian Rou) mooncakes have surged followed by the demand for the medicine.

Aiming to capitalize on the anti-viral hype, Chinese automaker Geely announced that it is planning to spend 370 million yuan to develop an “healthier car.” The company’s official statement read, “Cars with comprehensive virus protection not only require the capability to isolate harmful substances in the air, it also needs to quickly and effectively purify cabin air for occupants.”

Judging by the recent news, and by the fact that for the second time in 20 years China is facing a serious epidemiological threat, the dialogue about the current outbreak and about the ways to prevent another one in the future is likely to persist. This could send the demand for hygiene products and technological health solutions in China surging even after the outbreak is abated. While this alone is hardly enough to revitalize an economy the size of China, it has the potential to push the country forward in ways still unknown.