Coronavirus impact on China economy grows
To curb further negative effects, country halves tariffs on $75bn worth of US goodsEuropost
For China the coronavirus outbreak is already having a damaging economic and business impact, affecting everything from tourism to the supply of parts to the automotive and technology industries. Stock markets have been volatile and China’s economy – which makes up one-sixth of the global economy – hammered.
And even though the economic impact is still impossible to determine, some analysis suggest China's growth rate could drop 2 percentage points this quarter alone or more than $62bn.
The number of Chinese people travelling abroad has skyrocketed in recent years, rising from only 10.5 million in 2000 to 150 million in 2018. But as cross-border travel is halted to control the spread of the virus, tourism is now one of the worst-affected industries in the country. The outbreak is bad news also for nearby destinations such as Japan, where Chinese visitors account for 40% of the tourist spend and cruise ships have been anchored offshore after passengers tested positive. As a result, Royal Caribbean has called off eight trips to China and stopped any passengers who have travelled through, from or to China or Hong Kong in the past 15 days from boarding, with the restrictions costing it $50m of revenue.
Thailand’s tourism sector is also struggling since Chinese tourism makes up about 4% of its GDP, according to Capital Economics. The country’s central bank cut interest rates on Wednesday to an all-time low of 1%, partly blaming the coronavirus fallout.
With air travel in and out of China severely restricted and passenger demand tanking, Cathay Pacific has cut flights to China by 90%. The Hong Kong-based airline has asked 27,000 staff to take three weeks of unpaid leave to help see it through the crisis. Because of flight cancellations, shares have fallen in other airlines, including British Airways IAG.
The London-listed InterContinental Hotels has 443 outlets in China and has waived cancellation fees for a period, adding to the impact from a drop-off in domestic and inbound travel.
Moreover, provinces accounting for almost 69% of Chinese GDP will remain closed for more than an extra week after the annual Lunar New Year holiday, shutting factories, shops and restaurants, leaving ships trapped at port, and slamming household spending.
To cushion the economic fallout from the coronavirus epidemic, China's central bank said last week it would pump 1.2 trillion yuan ($173bn) into the economy and the government has then announced it will halve tariffs on some US imports as it moves to implement a “phase one” trade deal with the Trump administration. According to the finance ministy's announcement, tariffs on some goods would be cut by half, from 5% to 2.5% or 10% to 5%, on 14 February - the same day that last month’s agreement between the two countries is set to take effect. Washington also plans to halve tariffs on some Chinese goods on 14 February from 15% to 7.5%, according to a notice to the Federal Register by the office of the US Trade Representative, which will “boost market confidence, promote bilateral relations [with the US] and help global economic growth”.
The move spurred a rally on global stock markets with Asian bourses rallying from deep losses on mounting concerns over the impact on China from the virus. European shares also gained ground while US futures trading was indicating a firmer start to Wall Street.
As of the moments of writing (6 February) the death toll in China from the coronavirus outbreak had exceeded 550, with nearly 29,000 confirmed infections. The vast majority of deaths have been in the city of Wuhan and the surrounding province of Hubei, the centre of the outbreak.