Hopes for a post-coronavirus China rebound

A common phrase throughout much of the West’s post-World War II boom years was that if America sneezes the world catches cold. It was a sign of how much the post-war world was dependent on the US economy for its economic growth and stability. In more recent times America has been all but replaced by China, the world’s second largest economy after it. China contributes around 20 percent of world economic growth today. And for countries, like Australia, that are highly integrated into China’s economy, the rate is much higher. Given the impact of the coronavirus on mainland China’s economy we are all in danger of catching much more than a cold, economically speaking. And so, we are pinning our hopes on a quick China economic rebound from the coronavirus (or Covid-19). But how optimistic should we be?

The coronavirus is already impacting China’s economy hard with more than 60 million people quarantined by a provincial-wide lockdown in Hubei as well as some other cities. People returning to cities such as Beijing and Shanghai from home visits during the China Lunar New Year holiday have also been asked to quarantine themselves at home. And many people have not returned to work despite the urging of the Government because of fears of the virus and what they are seeing and hearing on social media.

Numerous media, such as in this CNBC article, are reporting the disruption of global supply chains as a result. Ratings firm S&P Global forecasts the coronavirus to take 70 basis points off China’s GDP and 30 basis points off world GDP even if the coronavirus is contained by the end of March.

Impact on Australia

Australia was immediately impacted following Canberra’s decision in late January to impose travel bans on non-residents who had travelled to China. The ban remains in place but is due for review by the end of this week (it was extended by a further week when reviewed at the end of last week).

The ban largely impacted the tourist and education sectors. With 1.43 million holidaymakers visiting from China each year the country has become our single largest source of tourists, who contribute $11.5 billion to the local economy. Around 250,000 Chinese students attend our universities, colleges and schools, bringing in some $12.1 billion. The ripple effect of the ban on students, tourists and business visitors in the first half of this year has been estimated at $6 to $8 billion by the head of the government-industry body coordinating the education sector’s response to the epidemic, according to this ABC report. That impact will be felt by everything from souvenir shops, to restaurants and cafes, to shopping malls, and entertainment venues.

The photos in this blog, taken last Saturday, show the current impact in Sydney’s Chinatown, with normally crowded streets, jewellery stores, and food courts and restaurants close to empty. (Note: I am still in self-imposed quarantine and used my motorcycle to get around and take these photos so I wouldn’t come into direct contact with anyone.)

Time to lift the travel ban

Clearly, Canberra needs to lift the travel ban when it comes up for review later this week. While I understand risk mitigation strategies the travel ban no longer makes sense. First, statistics suggest the numbers of new infections are continuing to stabilise. The sharp rise that occurred in Hubei province last week was not due to new infections but, rather, improved diagnostic testing and a recount of already infected individuals. Secondly, Hubei Province appears to be the main place that human-to-human infections are occurring; even infections that have occurred outside Hubei and outside China can still be directly traced to Hubei Province. The number of infections outside China have been very low. This should suggest a revaluation by the World Health Organisation (WHO) that perhaps we are not really dealing with a pandemic so much as an epidemic largely limited to Hubei Province.

Thirdly, for the most part infections are caused by droplets when an infected person sneezes or coughs. Further, the WHO believes the virus only survives on surfaces for a few hours. Simple hygiene procedures should reduce the risk of further infections, such as symptomatic people quarantining themselves, regular handwashing by everyone, and cleaning of surfaces with disinfectants. Indeed, these procedures worked during the SARS outbreak in 2002/03.

Fourthly, although 60 countries have instituted travel bans against China, they have done so against the recommendations by the WHO. Importantly Canada, which, like Australia, has a large ethnic Chinese population, has not instituted a ban for several reasons. First, that a ban would contravene international law. Secondly, that the WHO has recommended against a ban. And, thirdly, because the science does not suggest it is necessary or would achieve anything. For more on Canada’s approach see this article in the Ottawa Citizen. To date, Canada has only seen eight cases of coronavirus.

Finally, viruses, such as the swine flu that originated in the US and Mexico and which infected some 1 million people worldwide and which resulted in an estimated 200,000 deaths, did not result in a travel ban on Americans and Mexicans. While I am certain the current travel ban is not racist you can see why people might think it is.

The only reason for Canberra to continue with its ban would be political expediency because of community fear about a virus few understand. That’s not good policy. But, as I said in a previous post, the Government will not lose any votes at the next election for imposing or maintaining the China travel ban, including in seats with high ethnic Chinese populations.

China’s inevitable rebound

Having watched the unstoppable growth of China during the past 30 years it seems unlikely that China will not rebound from this set back. I have seen and heard the China sceptics and doomsayers for the past 30 years saying the end is nigh, China’s collapse is inevitable, and it will come. Well, it hasn’t yet.

We should not underestimate the resilience of the Communist Party or of the people of China. If my experience during SARS is anything to go by, Beijing will find ways to revive and drive economic growth, and the private sector in China which came into its own after SARS, will innovate and capitalise on the new opportunities. The question for us is what can we expect and how can Australian companies ride that wave?

This article by Fionn Wright on Linkedin outlines several of the changes we are likely to see in the Chinese economy as it emerges from the coronavirus. It is spot on. For Australian businesses the changes mean they will need to do more selling to consumers via China’s online platforms, such as Alibaba’s Tmall. Manufacturers of healthcare products will also have more opportunities as Chinese consumers become even more health conscious.

One thing I would disagree with in Wright’s piece is that more education will be delivered online. While this might be the case for Chinese institutions, foreign institutions such as Australian universities are likely to benefit from increased interest in an overseas education. Australia’s selling point will be that it offers a clean and safe environment for Chinese students. As I said in a previous blog post, Chinese tourists, students and investors will be attracted to safe, health conscious countries like Australia. Expect a new wave of Chinese travellers, students, property and business investors, and migrants after this crisis has passed.

The real question is whether the Australian government and business will be ready to take full advantage of China’s rebound. Plans need to be laid now, not after we see the pickup in Chinese business.

(Full disclosure: I am a member of the Tourism Subcommittee of the Australia China Business Council. The views expressed in this article are my own and not necessarily shared by the ACBC or any other organisations with which I am associated.)