With the outbreak of Coronavirus which has claimed more than 600 lives and affected 15,000 people, the Chinese economy is now facing the double whammy of trade wars and shutdown due to preventive measures. Given the halt of economic activity in China with the shutdown of cities, the global commodity market is in shambles and the global supply chain has broken.
As Chinese economy accounts for more than 20 percent of global economy in terms of purchasing power parity, the countries around the world, especially those well integrated or dependent on China are facing the heat of shutdown in China. The stock market indices across the world are in red, with East Asia and United States being the most affected.
The Chinese economy faced a similar threat from epidemic when SARS brought Chinese economy to a screeching halt in 2003. However, at that time, the weightage of Chinese economy in global economy was lower; it was not very integrated in global supply chain; and fundamentals of the Chinese economy were strong. But in 2020, the fundamentals of debt ridden Chinese economy are very weak, and the saying about its influence on global economy goes as: When China sneezes, the world catches cold.
The Chinese economy is set to collapse after Coronavirus outbreak. The property market, which contributes 25 percent to the economy of the country, has already collapsed. According to analysts, China is set to pose its economic growth in the last three decades in the next quarter, at less than 4 percent. “People with money are scared to death and don’t dare run around outside,” said Tina Yu, a Beijing-based real estate agent. “No one is going to work. The real estate developments are all locked up . . . the impact will certainly be big.”
The Chinese economy was already suffering with cyclical slowdown, and therefore, with the outbreak of coronavirus, it will collapse with the double whammy. “After four years of upcycle, the property sector was already at a turning point even before coronavirus hit,” said Larry Hu, head of China economics at Macquarie Capital. “Therefore, the risk is high for the property sector, which is the single most important part of the Chinese economy.”
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 Coronavirus.
Moreover, with the spread of Coronavirus to different parts of the country and China failing to control it has also dented the country image. The failure to control Hong Kong protests, Tsai’s win in Taiwan despite all out efforts of CCP to ensure her defeat and the trade war with the US which has hit the Chinese economy has severely dented Xi Jinping’s image around the world.
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 outbreak of Coronavirus and prolonged trade war will not only end the ‘story of China’, but the global economy is also bound to suffer from it. Although, impact on countries like India, which are not very integrated in global supply chain, would be minimal in longer term.