As the world is suffering from the worst public health crisis of modern history, the majority of the countries around the world are set to witness recession. In fact, global organizations like IMF, World Bank, ADB have predicted that this would result in the worst recession since the Great Depression, 1929, which means that countries will suffer from a loss far greater than that of the 2008-09 recession.
The majority of the large economies around the world, except two Asian giants, China and India, will register negative growth in this fiscal year. The countries of Western Europe, the United States, Australia, and Japan are expected to suffer the greatest losses from this recession.
As per a report by Reuters, 51 countries in Japan have already witnessed Coronavirus-related bankruptcies in hotel, tourism, and restaurant businesses, and the trend is expected to expand to other sectors very soon. “Coronavirus is affecting companies across sectors. If the impact persists, bankruptcies could spread not just among small firms with weak business foundations, but medium-term companies,” reads the report.
These bankruptcies, which resulted from the halt of economic activity in many sectors, will cost massive job losses. Therefore, the government in countries like Japan, Western Europe, or the United States, may incentivise and even force if necessary, their companies to relocate their plants from other countries to their own. Japan has already started with this exercise as it shall pay $2.2 to Japanese companies in China to set up base back home.
As the majority of companies of industrially developed nations like Japan, Europe, Italy, Spain, France, and the United Kingdom have their manufacturing set-up in China, the ‘factory of the world’ is going to suffer a massive loss.
Most countries are announcing economic stimulus as well as a series of steps to fight recession and job loss. One common step to fight to recession taken by most of the countries is going to be a shift back the production of good from China to their own country, or some other nation which could easily replace the Eastern giant in term production capacity like Indian, Vietnam, or Bangladesh. The Shinzo Abe government of Japan has approved a stimulus package worth whopping 108.2 trillion yen (US$993 billion) – equal to 20 percent of Japan’s economic output – to cushion the impact of the epidemic on the world’s third-largest economy. Out of the total amount, it has earmarked US $2.2 billion to help its manufacturers shift production out of China.
220 billion yen ($2 billion) is pledged for Japanese companies shifting production back to Japan and the remaining 23.5 billion yen for those seeking to move production to other countries. Moreover, the European countries have already become protective about their companies, and changed the FDI rules to shun takeover by Chinese giants.
In the last few decades, China established itself as ‘factory of the world’, thanks to unprecedented globalization. But in the last few years, globalization has suffered massive retreat with the rise of right-wing protectionist leaders like Trump. And the retreat of globalization, China- the sole advocate of globalization in current times, is already suffering.
The Coronavirus disease is set to prove final nail in the coffin of globalization, especially China-centric globalization. After the Coronavirus pandemic is over, the companies as well as workers would avoid any business with China, given the massive psychological resentment against the country due to the virus. At the same time, the governments would incentivize the companies to relocate because they want to fill up for the massive job losses due to the recession.
China’s rise in the last few decades was due to its manufacturing prowess, but with the rise in income (China has become middle-income country with per capita GDP five times to that of India), labor is getting costlier and the companies were already looking to relocate. The Coronavirus recession would give them a final push to relocate to their own country or other countries with cheaper labor like India, Vietnam.
Therefore, although China has not paid for the negligence of Coronavirus with lives as the death was very low compared to European countries and United States, but it will pay up by losing its status as ‘factory of the world’, which will result in its economic decline.