Coronavirus also threatens the economy in China | Society
Inactivity and uncertainty give China a strange sleepwalking air these days. As soon as vehicles circulate or people walk through the streets. More than 46 million people are blocked by quarantine. Many transports, suspended. Classes in schools, canceled until further notice. The shops, closed. Wuhan coronavirus, which has already killed 132 people and infected more than 6,000, threatens to leave, at least in the short term, profound effects on the country's economy, which already faced its lowest growth in decades, 6.1%.
As noted by economist Zhang Ming of the Chinese Academy of Social Sciences - the principal think tank Chinese state-, in statements collected by the magazine Caijing, GDP growth in the first quarter of this year could be reduced by a percentage point and be 5% or even less, due to the breakdown due to the virus.
These days, Chinese cities look like huge deserts. Cinemas, museums, and tourist attractions have canceled their operations. Most stores remain closed; those that have opened - with the dependents well covered by a mask - barely register activity, except those that sell groceries. Many restaurants have not bothered to reopen even though, under normal conditions, these would be cashier days: now the public avoids crowded places. In the Suzhou industrial center, factories are prohibited from reopening until February 8. In Shanghai, companies will not resume their activity at least until 9.
Next to consumption, The sector most affected by containment measures has been transport. To the blockade of a good part of Hubei, the province where Wuhan is located - the focus of the infection -, the recommendation to avoid displacements is added as much as possible. The airports, which should be the busiest time of the year, are half empty. Long-distance bus and high-speed train routes have been paralyzed. Trips abroad with tour operators have been suspended. According to official government data, transport has fallen with respect to the lunar New Year dates of 2019 by 28.8%. In the railway sector, the decrease reaches 41.5%. In the air, 41.6%.
The situation could not come at a worse time. The Chinese New Year is, like Christmas or Black Friday in the West, the moment of greatest spending on consumption, a sector of increasing weight in the Chinese GDP. Weak demand and shocks caused by the US-China trade war had left economic growth at 6.1%, its lowest level in three decades.
"The impact of the coronavirus on the Chinese economy may be much more important than what SARS had”, Explains Alicia García-Herrero, chief economist for Asia of the Natixis investment bank. García-Herrero refers to the syndrome that, also caused by a coronavirus of the same family as that of Wuhan, emerged in 2003 in a market in Canton (southern China) to leave almost 800 fatalities worldwide.
So, that epidemic subtracted a percentage point to Chinese growth during the second quarter of the year, which stood at 9.1%. Retail sales fell by half. Although the blow to the economy was only temporary, and in subsequent quarters the growth recovered its previous levels above 10%.
But now, García-Herrero points out, "China depends much more on consumption than it depended in 2003, and consumption will slow down without any doubt." To the luxury and durable goods must be added the hospitality sector. "There are many sectors that are going to be affected, and that are much more important for Chinese growth than they were in 2003, when external demand was the key," he says.
“In China during 2019, consumption contributed about 3.5 percentage points to the total real growth of 6.1% of GDP. A quick calculation suggests that if spending on these services fell by 10%, total GDP growth would fall by about 1.2 percentage points, ”notes the consultancy S&P Global Ratings in a note.
The first signs are not encouraging. In its reopening after the holidays, shares in the Hong Kong Stock Exchange have fallen by 2.4%. Due to the closure of the main chains and the suspension of the great premieres, in New Year, when box office records are usually broken, the collection in cinemas was only 1.81 million yuan, or about 250,000 euros, according to the company of selling Maoyan tickets. It is a 99% drop compared to the previous year.
"It's a certainty that the coronavirus outbreak will have an impact on economic growth this quarter," Mark Williams of Capital Economics says in a note. Compared to the SARS, "while this time the most transparent and active official response can be proven more effective in containing the virus, it can also increase the initial economic damage."
Much of this damage could correspond to the large informal sector of the Chinese economy, the one represented by migrants to urban areas. Back in the countryside to spend the holidays with their relatives, many have been surprised by the quarantine or have altered their travel plans. The prolonged stoppage of their jobs can leave them without income while it lasts.
"After SARS, China adopted an expansive fiscal policy, including tax cuts, to help the recovery of the most affected sectors," says Tianlei Huang of the Peterson International Institute of Economics (PIIE). “This time, China has large fiscal deficits and, therefore, has less space to apply fiscal stimuli than then. In monetary policy, the central bank can increase liquidity support, but there will be no credit-driven stimulus. ”
The key, analysts point out, will be in the speed with which the crisis is resolved. "Depending on how the crisis is reduced, and especially how the Chinese government manages it - not to a small extent how transparent it is - the cost could aggravate the decline in Chinese growth," says Huang.