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Surviving the coronavirus

The outbreak of the coronavirus in China has brought home the smallness of the world to many, with what happens on one side of the globe having far-reaching consequences

Azza Radwan Sedky , Sunday 16 Feb 2020
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Views: 2460

Setting its precarious health risks aside, the coronavirus will most certainly impact the global economy.

The World Health Organisation (WHO) has declared the outbreak of the coronavirus to be a global health emergency, though it has refrained from naming it as a pandemic thus far. But keeping track of confirmed cases or deaths from the virus or even lockdowns and quarantined cities has been extremely difficult as the numbers and the facts have been changing at whirlwind speed. 

The full global economic impact of the virus will depend on how well and how fast China can contain the outbreak. While China’s recent measures to impede the outbreak have been hailed by many, they are also bringing the Chinese economy to a halt.  

The Chinese government has enforced a quarantine system barring 100 million citizens from free movement in a bid to halt the spread of the virus. Flights from and to China have been cancelled. Public transport has been shut down; hotels, restaurants and even streets remain empty; and the lunar new year public holiday has been extended for several days to prevent people from returning to work, even if they may of course not have wished to go in the first place. 

Upon the reopening of the stock markets, trading was suspended almost immediately as stocks plummeted. However, the global selloff that might have been expected did not materialise, and media outlets, economists and stock-market gurus urged investors not to panic. As with all crises, such as during the outbreak of the SARS virus in 2003 or after the events of 11 September 2001, the markets rebound quickly.

However, Mohamed Al-Erian, chief economic adviser to the European insurer Allianz, advised against “buying on the dip,” or purchasing stocks after they had declined in price. When it comes to the reaction to the spread of the coronavirus, the banks may not be able to “ride to the rescue” soon enough, he said.

Should the crisis stretch out for a longer period, possibly for several months, China’s GDP will likely decline sharply. To confront this emergency, the Chinese government has injected $22 billion into the markets in the hope of boosting the economy and adjusting the downward trend. 

Even so, the manufacturing sector will likely be hit hard. International companies operating in China have already shut offices and stopped production, among them Apple, Ikea, General Motors and Starbucks. Kaho Yu, a Chinese economic expert, said that “business interruptions and closures are likely to be especially devastating for many small and medium-sized enterprises.”

Now we come to the global effects of the coronavirus outbreak. In 2003, when the SARS pandemic hit China provoking a global economic loss of $40 billion, China’s share of the global market stood at a miniscule four per cent. Today, it stands at 16 per cent, and this will make the ripple effect across the globe more profound. 

Tourism will suffer immediately in China and across the world. According to the US outlet CNBC, 163 million Chinese tourists in 2018 accounted for nearly a third of travel sales worldwide. Should the travel restrictions as a result of the outbreak of the coronavirus continue, the hospitality industry as a whole will face massive losses.

According to the US financial service Bloomberg, “from Tokyo to London, hotels, casinos, airlines and retailers are already recording a downturn and are bracing for weeks, if not months, of plummeting spending after China curbed outbound travel and governments tightened border controls.” 

The Diamond Princess, a luxury cruise ship, has been quarantined off the Japanese coast after one passenger who docked tested positive. The latest numbers say that 61 passengers on the ship have tested positive, and these numbers have kept climbing. 

During the SARS outbreak in 2003, China was still mostly the maker of low-value trinkets and cheap toys and clothing. Today, China has evolved into a main supplier of parts and components to many international industries. 

In addition to being an integral part of global supply chains, China also makes cars for General Motors, smart phones and computers for Apple and mobile phone chips for Qualcomm. With flights in and out of China restricted and factories halting production, China’s production role in global supply chains will be drastically affected and production lines across the globe will come to a halt. 

According to the New York Times, “all of this could play havoc with businesses that depend on China for components, from auto factories in the American Midwest and Mexico to apparel plants in Bangladesh and Turkey… A single part of an advanced product like a smart TV may be made of dozens of smaller components, with each of these assembled from other pieces.” 

With factories remaining idle in China, and customers across the globe not buying what they need, Chinese factories will have to “slash orders for imported machinery, components and raw material – computer chips from Taiwan and South Korea, copper from Chile and Canada, factory equipment from Germany and Italy.” All this will affect global markets. Oil prices have already gone down by about 15 per cent, with Saudi Arabia contemplating a cut in its output to keep the price of oil from collapsing. 

It is suddenly dawning on us all that the world is extremely small and that what happens at one end of the globe can have far-reaching consequences the world over, whether these are health risks or damaging economic fallout.

No one knows how long the coronavirus outbreak will last, how far it will spread, or how many lives it will claim. It is impossible to calculate the extent to which the virus will disrupt China’s economy, but whatever happens in China will definitely resonate across the world.


The writer is the author of Cairo Rewind on the First Two Years of Egypt’s Revolution, 2011-2013.

 

*A version of this article appears in print in the 13 February, 2020 edition of Al-Ahram Weekly.

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