BY BRADLEY A. THAYER AND LIANCHAO HAN
China’s pandemic caused by the rapid spread of the deadly novel coronavirus (2019-nCoV) and the Chinese regime’s failed response to control it has had a tremendous impact on China’s economy, as well as the world’s. Although it is hard to quantify the economic impact because of a lack of data, given the scope and magnitude of the pandemic inside China and its spread outside the country’s borders, analysts reasonably can conclude that it will result in a global disaster with serious economic effects.
As of Feb. 11, reported cases have skyrocketed to 43,104 and the death toll has exceeded 1,000, surpassing the 2003 SARS epidemic when at least 8,096 people were infected and 774 died. But the real numbers involving the coronavirus likely are much larger than what is reported. Many victims were cremated immediately, before their diagnosis and treatment in China. And the Chinese government’s information control regarding the outbreak has included public opinion manipulation that has lied about the disaster from the beginning.
To contain the pandemic, the Chinese regime sealed off the epicenter of the outbreak by locking down cities. As of Feb. 10, China had locked down three provinces (Hubei, Liaoning and Jiangxi), all four centrally-administered municipalities (Beijing, Shanghai, Tianjin and Chongqing), and more than 80 other major cities. The consequence has been major disruption to several hundred million people’s daily lives and economic production.
In the locked down provinces, home to more than 140 million people, the gross domestic product (GDP) exceeds 10.6 trillion yuan ($1.5 trillion USD). There are nearly 100 million residents in the four municipalities, where the GDP typically is over 12 trillion yuan ($1.7 trillion USD). Among the top 10 economic performance cities, all except one have been in the state of lockdown. Adding other locked-down cities, the pandemic has disrupted areas that produced at least half of China’s GDP. In reality, the affected areas likely are much larger — and the impact on people much greater.
The drastic lockdown is of such a scale that it has placed many businesses in all sectors in considerable distress. It is particularly destructive for private, small- to medium-size enterprises in the service sector, or those that rely on operating cash flow. During the Chinese New Year celebration, the quarantine caused three sectors — tourism, movie theaters and restaurants — to lose at least 1 trillion yuan ($143 billion USD) in revenue. By comparison, on the day of the Chinese New Year in 2019, China’s box office revenue was 58.59 1.5 billion yuan ($215 million USD), but it was 1.8 million yuan (about $258,000 USD) this year. Similarly, last year China’s tourism revenue during the new year was 513.9 billion yuan ($73.7 billion USD), but this year almost all sightseeing sites are closed.
The economic impact on Chinese agriculture is ruinous. Because of the lockdown, main transportation routes have been blocked. Businesses cannot ship perishable produce to market in the cities, where the price for vegetables and fruits is skyrocketing, and many villages also are locked down. Moreover, farmers reportedly are not allowed to work in the fields, resulting in rotten produce and huge losses for agriculture. The spring plowing and planting season should have begun, but because of the pandemic, the work has been delayed. That will result in a major grain shortage.
China’s exports and imports already were adversely impacted by the Sino-American trade war, and the pandemic has poured salt into the wound. Export hubs such as Shanghai, Shenzhen, Beijing and Guangzhou suspended operation and stopped production for weeks. Further delay will only increase costs. Because the World Health Organization (WHO) has declared China a Public Health Emergency of International Concern (PHEIC), fewer countries want to buy from China considering the potential transmission of the coronavirus. U.S. media report that data collected on weekly container vessel calls at key Chinese ports already show a reduction of over 20 percent since Jan. 20.
Unsurprisingly, China’s manufacturers have felt the pain. On Feb. 3, Caixin, a major Chinese economic media firm, reported China’s manufacturing purchasing managers index (PMI) dropped to 51.1, the lowest in five months. Because of the pandemic, most of the factories and businesses were not able to resume work as scheduled on Feb. 10 with the end of the holiday, and will postpone for a week or even until March. The delay could devastate the sector.
Many companies may have no choice but to declare bankruptcy or lay off workers. For example, the “King of Kings” nightclub in Beijing has said it intends to terminate its 200 employees because of financial hardship linked to the pandemic. This is just the beginning. We are likely to see a wave of business closures and bankruptcies resulting in 2020. Even international brands such as Burberry, Estee Lauder, and Apple are shutting stores in China.
Although the Chinese government injected 1.7 trillion yuan ($243 billion USD) to stimulate China’s financial market, it continues its spiral downward. Not only are the small businesses hit hard by the pandemic, big companies also are struggling to survive. A recent survey conducted by Tsinghua University Evergrande Institute found that among 995 companies, many are unable to resume normal production. The survey concluded that about 85 percent of the companies can survive for only three months.
This will trigger massive layoffs. The wave of unemployment potentially will reach tens of millions of people. By comparison, the economic costs for the 2003 SARS pandemic was $40 billion, but the costs for this one could be much bigger, causing political, economic, diplomatic and social reactions.
The Standing Committee of the Chinese Communist Party (CCP) — the seven members who control the real power of China — recently held two meetings within 10 days, a rare occurrence, to figure out China’s strategy for resuming production while fighting the pandemic. They do not appear to have the answer, since more economic hubs have been shutting down. For the CCP, the war against this pandemic is a political one and regime security relies upon winning it.
We fully expect China to request a delay to implementing phase one of its trade deal with the United States. President Trump should not let China off the hook, however. An open market in China will help both Chinese and American private business, and reduce the monopoly of state-owned enterprises. The tally of economic costs was made much worse by the CCP’s misrule.
Bradley A. Thayer is professor of political science at the University of Texas-San Antonio and the co-author of “How China Sees the World: Han-Centrism and the Balance of Power in International Politics.”
Lianchao Han is vice president of Citizen Power Initiatives for China. After the Tiananmen Square Massacre in 1989, he was one of the founders of the Independent Federation of Chinese Students and Scholars. He worked in the U.S. Senate for 12 years, as legislative counsel and policy director for three senators.
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