The coronavirus is currently reshaping the world we live in. Odds are that regardless of where you live, you’ve been impacted in some way, shape or form. Even if you haven’t gotten sick, you’ve probably been forced to work from home or quarantine yourself inside your home. A staggeringly large number of individuals have seen their normal lives turn upside down.
As big of a change as it has been for you as an individual, it’s been even worse for countries and companies. This is especially true if that country is China because China is where the virus is strongly considered to have started. Although it feels like are finally nearing the light at the end of the tunnel, we’re not able to say that we’re out of this yet, with recent developments such as the new Beijing outbreak generating a fair bit of renewed fear.
Let’s take an in-depth look at how the coronavirus has impacted China so far and what will continue to happen in the foreseeable future.
Public Health Crisis Turned Economic Crisis
It’s important to note that the coronavirus by itself does not necessarily pose an economic threat. The threat that the virus poses is entirely health-related. The economic threat stems from the steps that countries take to battle the public health threat. For example, most steps that governments take to battle the virus include eliminating large gatherings of people to slow the spread. Unfortunately, most places where people gather just happen to be centered around businesses.
Some of the industries that have been hit the hardest by the coronavirus are:
➢ Bars & restaurants
➢ Travel (airports, cruises, tourism, etc.)
➢ Non-essential factories or businesses
➢ Conventions and other events
These are all examples of industries that have been shut down to try and limit the spread of the coronavirus. The shutting down of businesses such as these (please note that this is also not an exhaustive list) then causes a few things to happen:
- Since businesses are not allowed to operate normally, they don’t need employees. This brings about mass layoffs and causes unemployment to skyrocket. Although hopefully many of these cases are temporary furloughs until things can resume in some capacity, it’s still a massive spike in unemployment. This spike will put a lot of strain on the unemployment resources that are available
- Consumer demand decreases. Even if certain businesses are left open, people are being cautioned to stay indoors and quarantine themselves. This means less demand for goods, which means lower profits. The economy is not a switch that you can just turn off and on. Even once business resumes, the return of profits is likely to be slow and gradual
- Mass bailouts. Since the economic wheel essentially stops spinning, the government needs to devise some type of bailout program to keep everything going. This is a unique situation where both citizens and corporations need to be bailed out. People need money because they cannot work but businesses also need money because they cannot generate revenue
This the general theme of what’s been happening in countries around the world. Now, let’s take a closer look at what China specifically has done to counteract the coronavirus.
Preventative Steps China Has Taken
According to Axios, the earliest recorded case of the novel coronavirus was on December 10th, 2019. China alerted the WHO about the new virus on December 30th and the first case entered the U.S. on January 15th of 2020. At the time that this was written, China is seeing a slowing spread of the virus, while other countries are still struggling to contain it. Although there is some criticism that China was not fully upfront about the severity of the virus, it also appears as though they’ve taken solid measures to contain its spread. Here are a few of the measures that China took early on to combat the virus:
- Free and easily accessible coronavirus testing kits
- Building new hospitals practically overnight to help care for the sick
- Rerouted train schedules to avoid the epicenter (Wuhan)
- Walled off entire hospital wards to contain the virus
- Attempted to trace practically every case (84,000+ cases)
- Mandated a countrywide shutdown that was heavily enforced
- Facilitated job shifts in order to assist with the outbreak
One aspect worth noting is that because China is a communist* country, the government has a lot more power to implement their policies than in the United States. For example, when China implemented their quarantine, they had armed guards patrolling at night to enforce it. This is a scenario that would not go over well in the United States.
Another example is that China was able to allow technology companies such as Tencent and Weibo to tap into people’s smartphones and help with contact tracing. The United States attempted to replicate this system using Apple and Google but was met with a severe backlash over digital privacy concerns. Technology companies in the United States are constantly being asked to toe the line in terms of what the government asks them to do and what is best for the users (and their future profits).
How the Coronavirus Is Impacting the Chinese Economy
When China ultimately recognized the threat of the virus, the response was swift and deliberate. Many of the measures that they took may have seemed a little bit like attacking a fly with a bazooka, but for the most part, they have been very successful in stopping the spread of the virus. So what has that meant for their economy thus far?
Well, China’s GDP still contracted by 6.8% during the first quarter of 2020. It’s worth noting that this is the first time their GDP has shrunk in 28 years and Business Insider described it as an “extraordinary shock” to the global economy. China hasn’t reported a full year of contraction since 1972 and there is still time for them to keep that streak alive. To supplement this news:
● Industrial production fell by 1.1% year-over-year
● Retail sales of consumer goods fell by 19%
● Investment in fixed assets fell 16.1%
● Imports and exports fell by 6.4%
These results were worse than expected.
As of now, the Chinese government is putting a greater emphasis on employment and inflation than on the GDP. China reported unemployment numbers of 6.0% in March and they hope to keep these numbers consistent or lower moving forward.
The main immediate focus of the government is to put people back to work, which is a good solution so that their citizens will be able to earn their own paychecks instead of relying on government assistance.
NOTE: China’s reported unemployment numbers have drawn a lot of scrutiny for not being entirely accurate. First, China has historically always reported an unemployment rate somewhere between 4-5%. Now, in the midst of the worst pandemic in modern history, they’re reporting 6% unemployment. Compare this to the current unemployment rate in the U.S., which currently sits around 14.7%.
The following graph depicts China’s GPD decline and was taken from CNBC:
China is a unique country because of its sheer size. Many companies rely heavily on China for their manufacturing as well as for their customer base. This means that if factories in China are shut down for extended periods of time, it can have global repercussions.
How the Coronavirus Will Continue to Impact the Chinese Economy
Considering how fast the virus spread around the globe (infecting almost 8 million people in just a matter of months), it would be a little naive to think that we are completely out of the woods. The coronavirus will continue to pose a threat over the next several months and perhaps even years. The revival of the Chinese economy and how they perform over the next 10-20 years will depend largely on how the virus is handled over the next few months. So far, it appears as though they’ve done a good job but relaxing too early can lead to a second wave.
This makes it difficult to make economic predictions because economic success will largely rely on the handling of the virus. However, in a situation where “no news is bad news,” China recently decided not to release a GDP prediction. This is very telling because it shows that they still aren’t sure what will happen with the coronavirus or with their economy in the foreseeable future. The decision not to make an economic prediction is unprecedented and hasn’t happened since they decided to start making predictions 20 years ago. If there is one way to interpret this decision, it’s “things are not looking good so we’re just going to not say anything.”
On the health front, a researcher at the Institute of Pathogen Biology at the Chinese Academy of Medical Sciences, Jin Qi, made the prediction that “This is very likely to be an epidemic that co-exists with humans for a long time, becomes seasonal and is sustained within human bodies.” In the same article, he compared the coronavirus as taking a seat next to the seasonal flu, where it appears every year consistently. This is mainly due to the fact that it can be transferred asymptomatically.
We hope you found this article valuable when it comes to understanding how the coronavirus has impacted China and the Chinese economy. If you’re interested in reading more articles, we would recommend visiting our New Here section and for a more personalized approach, our team of consultants is at your disposal.