The Wuhan Coronavirus is continuing to frighten the entire world as it seems to expand more and more outside of China. Unfortunately, some things can’t be protected by a 20-second hand wash or a pump of Purell. In addition to health, the global economy has been affected. Uncertainty regarding the virus has led supply and trade chains across the globe to suffer, ultimately harming not only the Chinese, but the entire world economy.
The Chinese economy was already hurting from the US trade war, as it reached its lowest growth rate of 6.1% (a new low since 1990) in the last quarter of 2019. This pre-existing issue coupled with the deadly virus has the potential to devastate the Chinese economy. Economist Ed Hyman predicted a 0% growth rate for China this quarter, stating, “It’s not the virus, it’s the trade that matters. People are not going out. They are not shopping, and that’s what’s hurting particularly China.”
With cities like Hong Kong shutting down public transportation, Chinese oil consumption has dropped immensely, drastically decreasing the world’s overall oil consumption. Oil consumption is largely promoted by overseas travelers from China, which are the top spenders in international tourism. With Chinese transportation so low, oil companies feared lower demand and preemptively lowered their prices. This decrease in prices decreased overall oil value, which has led to the lowest oil prices (below $50/barrel) in over a year. For energy companies, this means significantly lower profits and potential for fewer investors, which could eventually lead to an overall energy shortage.
While the virus has brought a stalemate in the US-China trade war, this stalemate has not done much for either country. As the virus weighs heavily on Chinese GDP, China agreed to halve tariffs on $75 billion of US goods in an attempt to garner higher exports and subsequently increase GDP. This has been a long-awaited step towards a resolution, as tensions between the two countries have been rising since early 2018. Unfortunately, since plenty of Chinese companies like Boeing and Nike have been shut down, the US is limited in what it can (or wants to) import from China, meaning it cannot help boost Chinese GDP. These shutdowns and subsequent decreased price of commodities are likely responsible for the 9.1% fall in Chinese stocks, which account for the depreciation of the yuan by about 2%.
The question now is: can China recover?
Economists look to the 2003 SARS epidemic for answers, but do not find much hope. “Back then, consumer spending only accounted for only one-fifth of China’s growth… Today… about one-third of China’s economic expansion is powered by consumer spending at home.” The differences between the two viruses coupled with the changes in China since SARS mean there is truly no real comparison between the two. With such little information, all we can do is hope that the virus outbreak, like SARS, is short-lived with little long term effect.