I am having my concerns on COVID-19 and the impact of the virus. I have company:
“Coronavirus is China’s fastest-spreading public health crisis, Xi Jinping says. Chinese President Xi Jinping told top government and military leaders that the coronavirus crisis was the country’s most serious public health crisis and urged them to work relentlessly to overcome it.” (SCMP)
I also share this view from NYT infectious diseases reporter, Donald G. McNeil Jr., who has covered pandemics for nearly two decades.
“It’s more deadly than flu, and it’s spreading like flu. Maybe not quite as fast, but these cases where hundreds of people all get infected in one church or aboard the Diamond Princess — that was scary. That was much faster than I expected.”
On 16 February 2020 SCMP published an article that merits comments, now a week later and still as worrying. Interesting reading to reflect on the situation.
I have warned already that despite all the optimism in China Daily and other official media, the economy in China – and the world – will be hit seriously. I already gave several examples in earlier posts. Yes China is resilient and has many strong tools to weather the storm. But it ain’t that simple.
The tourism sector is one of the many affected. Could the coronavirus crisis sink the cruise industry? The Diamond Princess went from a symbol of luxury to one of disaster when the coronavirus struck down hundreds of passengers. Its story raises questions about the future of a multibillion-dollar industry.
And so on. I won’t even try to be complete.
Real estate (leasing and sales) is at a virtual standstill (agencies closed and you can’t visit buildings). This personally affects me financially in a serious way.
Debtors systematically stop paying their debts, as I hear from all sides (and close friends). It is the start of a chain reaction. You don’t get the money you counted on, you also stop paying.
As I hear from many that the situation won’t be back to normal before June, that’s a real concern. Worse, landlords mostly refuse to lower the rent, virtually killing a lot of business. Government rents can be reduced but require tons of paperwork when office staff is often not at work and offices are closed.
As a result there is a serious exodus of foreigners. Won’t help business and the economy.
The SCMP article
“Forget SARS, the new coronavirus threatens a meltdown in China’s economy.”
- SARS’ fatality rate may be higher than Covid-19’s, but economically speaking the new coronavirus is far more deadly;
- This time around, a worst-case scenario of financial collapse, foreign exodus and large-scale bankruptcy cannot be ruled out.
Cary Huang SCMP
Some key points from the article for your consideration. Heavily edited, read the original.
Given the rapid advance of medical science and globalization of recent decades, the scale, spread and economic costs of human epidemics are rocketing up, even if fatality rates are starting to fall.
Never before has China paid such an economic price for an epidemic as it has done already with the coronavirus. And the damage is spreading.
At this stage, it is obvious that the economic impact of Covid-19 will be far more severe than that of SARS, or any other previous epidemic, for a number of reasons.
Firstly, the Chinese economy is four times as big as it was in 2003, so its losses and the impact on the global economy are likely to be correspondingly larger. A rough estimate is that Covid-19 will cause at least four times as big a loss as SARS.
Secondly, the timing is far worse. The outbreak took place just days before the Lunar New Year holiday, when hundreds of millions of Chinese travel domestically and internationally to attend family reunions and festive events. Government clampdowns on travel and the behavior of cautious consumers keen to avoid crowds and social gatherings mean a sharp drop in consumption. Hospitality, retail, air travel, transport, entertainment and tourism will be among the sectors hardest hit.
Thirdly, China’s rapid urbanization means Chinese are now much more likely to travel domestically and abroad than two decades ago. This also means that when they stop travelling, the disruption is greater. The country has 288 million migrant workers, who account for about a third of China’s labor force. Many who travelled to rural homes for the holidays will be either unable or unwilling to return to work in the cities.
Fourthly, the magnitude of the government’s response has been unlike anything ever seen before. Whole cities have been locked down, effectively grinding some local economies to a halt since Beijing declared all-out war on January 23. At the peak, provinces accounting for almost 69% of China’s GDP were closed for business, according to Bloomberg Economics. There were no such measures in 2003.
Fifthly, rising US-China trade
Frictions will magnify the economic impact of Covid-19 as the world’s two largest economies remain locked in tariff and technology wars even if they have signed an interim truce. The epidemic may well trigger an exodus of multinational companies, as many firms were already rethinking their presence in China due to the tensions with the US and rising costs.
Sixthly, for the millions of small and medium-sized enterprises (SMEs) in China, the nightmare may be just beginning. Many small manufacturers fear foreign customers will shift orders to other countries due to disruptions in production and delivery. In a survey of 995 SMEs by academics from Tsinghua and Peking universities, 85% said they would be unable to survive for more than three months under the current conditions. If the disruption goes on long enough, it could trigger a wave of bankruptcy among SMEs, which contribute more than 60% of China’s GDP, 70% of its patents and account for 80% of jobs nationwide.
Finally, the epidemic will weigh on banks in the form of non-performing loans, adding risk to the banking system and pressure to the country’s towering debt pile, which stood at more than 300% of annual GDP at the end of last year. The risk of default on the country’s 99.1 trillion yuan of outstanding onshore bonds is increasing. The disruption will weigh on the capacity of some companies and individuals to repay loans, pushing up delinquency rates. Financially weak SMEs could face additional funding pressure as they are exposed to refinancing risk.
Unfortunately, as its scale is bigger and spread is faster, this epidemic is likely to go on far longer than SARS did. Recovery will be slow as quarantine measures and consumer caution will continue long after the disease has hit its peak. This will cause a social and political fallout that will hit not just the economy but also the whole society.
Thus, the worst-case scenario cannot be ruled out. Massive financial collapse, an exodus of foreign companies and large-scale bankruptcies all loom on the horizon if this epidemic cannot be contained soon. In short, nothing less than a major economic meltdown.
How I survive being mostly locked up at home
And I am alone in my home office. Staff and clients can’t come. Wife in Brussels. Gym (obviously) closed.
Fortunately I can help myself well. I cook, clean and exercise at home. Occasionally I meet a very few friends.
My usual shops are open and I can find more or less what I need, some items being out of stock. I buy most in Jingkelong Sanlitun, close to my home. See my cooking, shopping, cleaning and entertainment.
So, see how I shop, cook, clean. And I am happy to finally watch my old movies in VHS and VCR. As a James Bond fan…
I also have optical fiber internet, and thousands of TV channels (too many HBO and other, addictive).
And exercise! The water bottle is near 5 kg.
But overall it is a rather depressing environment.