Phillipian Commentary: The Economics of Coronavirus

OK, I get it. You’re tired of hearing about the coronavirus. For over a month now, newsletters have been filled with daily updates on the coronavirus. Even The Phillipian has been flooded with articles. And, to be honest, I completely understand the indifference most people have. After all, it’s easy not to think about what’s happening on the other side of the world. However, I and many of the Chinese students on campus do care. Our school won’t be touched by the virus anytime soon, but many members of our families live in China. Whether or not we believe in the measures the government has taken in response to the outbreak, it’s hard to sit back when our compatriots are suffering. So, instead of tossing the paper aside, please take the time to read just one more article on everyone’s least favorite virus. Over the past few days, even as foreign cases of COVID-19 have exploded, the numbers have started to stabilize in China. But as they do so, a previously overlooked aspect of the virus is emerging—its impact on supply chains and consumer consumption around the world.

From an economic perspective, it is clear how China has been hit by the coronavirus. At the height of the outbreak during the Chinese Lunar New Year, the government announced a three-day extension to the week-long national holiday. This extension expired on February 3, and for a moment it seemed as if everything would go back to normal, as if the industrial giant would continue its ceaseless production. But then, many local governments extended the break, and with it, the travel ban—again. Most extended it to February 9, but some provinces like Guangdong have extended it to February 24. This poses a serious problem to the 277.5 million migrant workers in China, most of them rural workers who have to travel back to the larger cities in which they work. While they remain isolated at home or placed under a mandatory two-week quarantine period after they return, they will earn nothing. Even those who have managed to return often face discrimination from landlords and local officials; reports abound of rural workers being denied access to their residential compounds due to fears of infection, even for those who returned from provinces other than Hubei.

The truth is, however, that China’s economy needs migrant labour just as much as these workers need their wages. In 2003, when the SARS disease spread similar hysteria around the world, it wiped out between one-half and one percent of GDP growth. Growth soon rebounded afterwards, and all was well. This particular outbreak, however, is likely to have more profound consequences on the global economy. First, there is the problem of scale: while SARS infected 8,000, there are already almost 80,000 cases of COVID-19. Far more crucially, China’s economic role is radically different from the one it played in 2003. Back then, it accounted for less than four percent of worldwide GDP—now it accounts for 16 percent of worldwide GDP and 39 percent of global economic expansion in 2019. What’s more, China is now enmeshed within the supply chains of most global companies, from the technology it assembles to the auto parts it supplies. Such supply chains are extremely fragile; car manufacturers like Hyundai and Nissan have already halted production, while Apple’s market capitalization dropped by 30 billion dollars after it acknowledged supply chain pressures due to the sudden halt in Chinese production. Should China lose another one percent in GDP growth this year, the impacts would be acutely felt around the world.

It’s easy to dismiss the novel coronavirus as a false alarm amongst the barrage of news today. However, we should recognize the gravity of the situation. Over the last few weeks, Skylar Xu ’20 and Christy Wei ’21 have perfectly illustrated the problems that COVID-19 poses, both for the political stability of the central government and for the lives of citizens living in China. It is time for us to acknowledge its economic threats as well. This virus may have originated in China, but its scope is truly global.