• The novel coronavirus has cast a vice-like grip over the globe, and taken the form of a global health emergency.
• Delayed action by China and regular foreign travel by citizens has precipitated a spread of the virus beyond the mainland.
• Shutting of Chinese factories beyond the Lunar New Year holidays has disrupted global supply chains and also impacted companies with consumer facing businesses in China.
• The eventual impact of the virus will depend on the speed at which it is brought under control. But both policymakers and businesses will need to have contingency measures in place.
From the times when the world was exceptionally wary about the US catching a cold, we have to now also be prepared for the possible repercussions of China catching pneumonia.
With the recent onset of the coronavirus epidemic, the world is getting more than a curtain raiser of such a possibility. How and when the virus actually took birth in China is still a subject of debate. While the term may seem to be new to laymen, coronaviruses are actually the scientific nomenclature for a wide family of viruses that are known to cause respiratory illnesses. They infect most people at some point, but with mild to moderate symptoms. But in some cases, they can also lead to some more serious infections like pneumonia and bronchitis. They affect animals quite commonly, but very few are known to impact human beings. Two of the most ‘popular’ are the Middle East Respiratory Syndrome coronavirus (MERS-CoV) and the Severe Acute Respiratory Syndrome coronavirus (SARS-CoV). The present one is actually named novel coronavirus (2019-nCoV) according to the WHO website.
It was initially traced to a seafood and animal market in Wuhan called Hunan seafood market, and bats were thought to be the carriers of the virus due to its genetic sequence being similar to two earlier viruses that originated in bats. But no bats were actually sold in the Hunan seafood market, so it is speculated to be some other animal. On the other hand, some reports link it to China’s secretive biological weapons programme. Conspiracy theories are gaining ground more so because of the Chinese government’s contentious attempts at a mass cover up and clampdown on people who tried to raise awareness of the virus in the initial days. The repercussions of this delayed action look ominous for China and the world at large.
A deadly proliferation
The fact of the matter now is that the virus spread has taken alarming proportions within China and beyond. As of February 5, 2020, there were 24,363 confirmed cases reported in China, out of which 16,678 cases are from the Hubei province. It is followed by Japan (33), Thailand (25), Singapore (24) and Republic of Korea (18). India also had 3 confirmed cases by that date. The virus is known to have caused 491 deaths in China by February 5, with only one death so far outside China, in the Philippines. The death toll in mainland China has already exceeded that of the SARs epidemic.
The Chinese government has put the epicenter city of Wuhan and nearby cities on lockdown, which means no one can enter or leave these cities. US has already evacuated nearly 200 of its citizens from Wuhan and is now monitoring them for the infection. It will enforce quarantines on people who travelled to Hubei in the past 14 days. India has kept 5,123 people under home surveillance and 741 tests have been done for the virus. Three of them were found to be positive. Anyone with a history of travel in China since January 15 could be quarantined. India has already evacuated 647 citizens from Wuhan and placed them under quarantine. A travel advisory has been issued urging everyone to refrain from travelling to China.
Economic impact
The virus, and the corresponding impact on business is expected to be quite devastating. WHO has estimated a total expenditure of around US$ 675 million to stop further spread of the virus in China and globally and also protect countries with weaker health systems.
The international community has launched a preparedness and response plan from February-April 2020. “My biggest worry is that there are countries today who do not have the systems in place to detect people who have contracted with the virus, even if it were to emerge,” said Tedros Adhanom Ghebreyesus, WHO Director-General. The objectives of the Strategic Preparedness & Response Plan (SPRP) are to limit human-to-human transmission of the virus, particularly in countries most vulnerable to an outbreak; identify, isolate and care for patients early; communicate critical risk and event information; minimize social and economic impact; reduce virus spread from animal sources; and address crucial unknowns.
Provinces that are closed for over a week beyond the Chinese Lunar New Year holiday account for around 69% of China’s GDP. Even if the virus is contained quickly, China’s GDP growth for the first quarter may drop to 4.5% YoY. The travel restrictions in place are limiting movement of 48 million people.  Wuhan is a crucial manufacturing and logistics hub, with 384 production sites. The shutdown has dealt a major disruptive blow to global supply chains for companies that include Robert Bosch GmbH, Honda and Nissan.
The fact that China is the world’s largest exporter of intermediate manufactured goods compounds problems for companies across the globe. The reliance of the world on these exports from China doubled to 20% between 2005 and 2015. For Asia, it is even larger at 40%. Nike has closed around 50% of its company-owned stores and Starbucks has shut down 2,000 cafes, indicating major losses for consumer-facing firms in China. Airbus has stopped its production in Tianjin, and major companies like GSK, Hyundai, Toyota, GM and Volkswagen have also stalled their production.
Tourists from China increased from 10.5 million in 2000 to 150 million in 2018. Tourism will, therefore be one of the most affected sectors; especially for countries like Thailand, which is heavily dependent on Chinese tourists and looking at a potential loss of US$ 1.5 billion. Besides, there is a significant impact on industrial commodities like crude oil and copper, where China is a key buyer. Overall, the global economic impact could shave off around 0.2% from the growth for the first quarter according to Oxford Economic.
As CARE Ratings affirms, India is also quite vulnerable to the short-term impact of this phenomenon, as China accounted for 14% of India’s total imports in FY 2018-19. In electronics for instance, China serves 50-60% of demand from India, and Indian pharma, automotive, engineering goods and chemicals industries are also significantly dependent on Chinese imports. Short-term substitution of these products will be tough and definitely negative for the bottomlines of these companies.
Chinese travelers accounted for 3.12% of total tourists to India and the aviation sector is expected to be impacted in particular. Closure of around 70,000 theatres in China impacts Bollywood, which has seen some impressive success in the Chinese market in recent years. Seafood and diamond industries are also seeing an impact due to reduced demand from the Middle Kingdom.
Swift control over the virus and opening up of Chinese factories will be crucial to minimising the impact of the novel coronavirus. But in anticipation of their worst fears proving true, both policy makers and industry must ensure contingency measures are in place, especially for critical industries like pharma where import dependency is large.
