The stock markets in China registered its biggest daily fall for five years, as the toll from the Coronavirus increased. Shanghai Composite Index, the benchmark index of Chinese stock market, fell by 8.7 percent on Monday. This is festive season in China as the country celebrates Lunar New Year (Chinese New Year) and in normal times, the economic activity increases manifold during the season. But, given the outbreak of Coronavirus, the economic activity has stalled in the country, as the government has advised the people to stay at home.
The Shenzhen Composite Index fell by 9.1 percent, which is close to maximum permitted fall of 10 percent. Almost all major cities in China are locked down and the manufacturing activity has stalled. The lockdown of China has disrupted the global supply chain given the ‘factory of the world’ status of the dragon.
The global economy, already suffering from prolonged slowdown, will get hit with the outbreak of the deadly virus in China. Experts have estimated that Coronavirus could cost 60 billion dollars to the China alone. The Chinese central government has already announced the 12.6 billion dollars to fight the economic slowdown due to Corona.
Given the shutdown in China, the countries whose economy is closely integrated to Chinese economy have also taken a hit. The stock market in the United States registered above 2 percent decline while those in Australia and New Zealand are also in red. Saudi Arabia, the largest oil exporter to China, is suffering from the shutdown in China, as the global oil prices fell by more than 10 percent. China is the largest importer of oil and natural gas and it has depressed the short term economic prospects of OPEC countries.
Chinese economy is already slowing down as the country posted its lowest growth in the last three decades in 2019, at 6.1 percent. The outbreak of Coronavirus is expected to further deteriorate the macroeconomic health of the debt ridden Chinese economy.
“The coronavirus repercussions on the economy mark the latest in a series of setbacks in the economy over the past year, including a handful of bank failures sparking contagion fears, forcing the central bank to become ever more generous with the provision of liquidity to markets,” said Economist George Magnus, associate at Oxford University’s China Centre.
As the share of China in global economy has increased exponentially in the last few decades, the slowdown in China will drag the global economy southwards. In purchasing power terms, China accounts for almost 20 percent of the global economy, ahead of the United States. In 2003, a similar epidemic named SARS spread throughout China, and this resulted in massive damage to the Chinese economy. But, the share of China in global economy was very low at that time, and therefore, it did not affect the global economy.
But this time, the global economy is bound to feel the heat as China is among the largest consumers as well as largest producers of goods and services. It is perhaps the most important member of global supply chain. American companies like Apple, Boston Consulting Group, and Levi Strauss are already hit with the outbreak of Coronavirus and taking necessary steps for the safety of their workers in the United States. So far, more than 14,000 people have been affected by the virus in China and more than 300 people died. More than 20 countries have registered cases of corona, although only single person outside China has died so far. Therefore, although, the virus hasn’t spread like wildfires outside China so far, but, given the importance of China in global economy, it will affect the countries around the world, economically.