Global equities have slumped across markets as the 2019 novel coronavirus (2019-nCoV) outbreak fanned concerns about near-term risks and triggered worries of far-reaching implications on China’s economy and the potential impact on the global economy.
Unlike corporate earnings or economic data, the long-run effects of the virus are more difficult to measure for most investors and analysts, and they have added even greater volatility to markets and represent a higher degree of uncertainty not seen since the height of the US-China trade dispute.
The outbreak is expected to hit China’s economy as consumers are urged to stay home, businesses are shut and public transportation is curbed. More importantly, a marked slowdown in the Chinese economy would likely challenge the country’s policymaking capability and execution of national plans.
The million-dollar question is: When would businesses be allowed to resume work in China?
Allowing businesses to resume operations too early would put more people at risk of contracting the virus, while delaying for too long would threaten business health and weigh on economic growth in the long term.
Thus far, more than 14 provinces and cities in China have extended their Lunar New Year holidays to the middle of this month to curb the spread of the virus. The consequences will be huge, as output from those provinces and cities accounted for 78 percent of China’s exports and nearly 69 percent of its GDP last year, according to Bloomberg calculations.
Making things worse is that the WHO on Thursday declared the viral outbreak — which had as of Saturday sickened more than 14,000 people around the world and killed at least 300 — a public health emergency of international concern, confirming the severity of the disease and signaling a need for governments, businesses and the general public to reassess their plans related to China.
Even though the WHO stopped short of recommending restrictions on travel or trade, many countries have either suspended flights to China or advised their citizens not to travel there.
Investment, tourism and commerce are taking a hit on the outbreak, while manufacturing supply chains and logistics networks are bracing for an extended period of disruptions due to the holiday extensions and other measures. It is too soon to say whether 2019-nCoV would deal a more severe blow to China’s economy than the SARS outbreak in 2003, yet it is not impossible if the situation deteriorates further.
Concern over a viral outbreak would also deal a blow to Chinese President Xi Jinping’s (習近平) leadership and China’s political situation.
The Economist magazine reported that in addition to the economic impact of the outbreak, it could trigger political repercussions in China, causing sustained damage to the reputation of the Chinese Communist Party (CCP) and even Xi himself. The CCP has long claimed its governance is more effective than that of democratic countries, but its failure to contain the spread of the epidemic, despite the tough measures it has imposed, is at odds with the effective governance it has trumpeted.
The outbreak jeopardizes China’s global image, the morale of its citizens and the coherence of its society. Moreover, it will be painful for the CCP leadership and affect China’s engagement in the international community.
WHO Director-General Tedros Adhanom Ghebreyesus said that the body’s global emergency declaration for the epidemic is not a vote of no confidence in China, but it is clear that the world’s faith in China’s capacity to control the disease is weak, as the virus seems relatively contagious, based on its rapid spread in China and elsewhere.
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