It’s been a long hiatus, the longest lunar new year break ever, and there is no sign of a clear end to it. The coronavirus, which now has a formal name that will almost certainly be tossed aside in favor of “Wuhan,” has created a situation that makes prediction next to impossible. Before it started, China was facing a hard slog to hit the magic 6% GDP growth rate for the year, and the first quarter is now surely going to be a complete washout. The immediate danger is that the lockdown, depending on how long it lasts, has the potential to cause irreparable damage to the private sector, which is so important to the Chinese economy in terms of employment. Many many companies today are facing the prospect of shutdown if business does not revive soon. Beijing will of course be pouring in the stimulus funds, but that won’t help many firms through to the spring. Regardless of how it plays out, this incident, the biggest shock to the Chinese system for 31 years, will have an inevitable impact on both exports and domestic consumption. It reminds all multinationals of the need to diversify and not be so dependent on China for supplies. And it reminds all Chinese people to be cautious on spending and make sure you have a backup stash to get you through the unexpected.
How the system responds will depend on how quickly things turn around and how deep the hole is. The ruction 31 years ago, it should be remembered, resulted in the reboot of Shanghai, the kickstart of a property market and the message “To get rich is glorious”, and the result was both the massive growth of the Chinese economy and the survival of the system. Plus the birth of China’s middle class.
It will be easier to get a sense of where things are going once virus death and infection numbers are clearly past their peak. Until then, wash your hands.
You must log in to post a comment.