[The spread of the dangerous virus has spooked
global markets and threatened prospects for economic growth.]
By
Peter S. Goodman
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Wuhan, where the outbreak
of the coronavirus started, is sometimes likened to
Chicago for its role as
an industrial hub. Credit Hector Retamal/Agence
France-Presse — Getty
Images
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Before a mysterious respiratory illness emerged
in the center of China, spreading with lethal effect through the world’s most
populous nation, concerns about the health of the global economy had been
easing, replaced by a measure of optimism.
The United States and China had achieved a
tenuous pause in a trade war that had damaged both sides. The specter of open
hostilities between the United States and Iran had reverted to stalemate.
Though Europe remained stagnant, Germany — the Continent’s largest economy —
had escaped the threat of recession.
Now, the world is worrying anew.
An outbreak originating in China and reaching
beyond its borders has summoned fresh fears, sending markets into a
wealth-destroying tailspin. It has provoked alarm that the world economy may be
in for another shock, offsetting the benefits of the trade truce and the
geopolitical easing, and providing new reason for businesses and households to
hunker down.
On Monday, investors dumped stocks on
exchanges from Asia to Europe to North America. They entrusted their money to traditional
safe havens, pushing up the value of the yen, the dollar and gold. They pushed
down the price of oil over fears that weaker economies would spell less demand
for fuel.
In short, those in control of money took note
of a growing crisis in a country of 1.4 billion people, whose consumers and
businesses are a primary engine of economic growth around the world, and they
chose to reduce their exposure to risk.
By late Monday, the virus had killed more
than 100 people in China. More than 4,500 had been infected — mostly in
mainland China, but also in Hong Kong, Japan, Macau, Malaysia, Nepal,
Singapore, South Korea, Taiwan, Thailand and Vietnam, and as far away as
Australia, Canada and the United States.
The emergence of the virus in China, whose
government jails journalists and tightly controls information, left the world
uncomfortably short of facts needed to assess the dangers.
“It’s the uncertainty of how the global
economy is going to respond to the outbreak,” said Philip Shaw, chief economist
at Investec, a specialist bank in London. That will depend on the severity, the
spread and the duration of the outbreak, he said, and “we don’t really know the
answers to any of these questions.”
What was left to the imagination resonated as
a reason for investors to unload anything less than a sure thing.
Stocks in Japan and Europe fell more than 2
percent. In New York, the S&P 500 was down 1.6 percent, with stocks of
companies whose sales are dependent on China especially susceptible. Wynn
Resorts, which operates casinos in the gambling haven of Macau, a special
administrative region of China, dropped more than 8 percent.
The virus and its attendant unknowns conjured
memories of another deadly illness that began in China, the 2002-3 outbreak of
severe acute respiratory syndrome, or SARS, which killed nearly 800 people.
“In many ways, it looks similar,” said
Nicholas R. Lardy, a China expert and senior fellow at the Peterson Institute
for International Economics in Washington. “We are seeing fast increases in the
number of cases. The hospitals are overwhelmed and are not even able to test
people with symptoms. I’m expecting the cases to go way, way up.”
In the end, SARS significantly slowed the
Chinese economy, dropping the annual growth rate to 9.1 percent in the second
quarter of 2003 from 11.1 percent in the previous quarter, according to Oxford
Economics, an independent research institute in London.
The episode is coinciding with the Lunar New
Year, a major holiday in which hundreds of millions of Chinese journey to their
hometowns to visit relatives.
With air, rail and road links in central
China restricted as the government seeks to block the spread of the virus,
hotels, restaurants and other tourism-related businesses are likely to suffer.
Some economists assume that those effects
will quickly dissipate, leading to a revival in the consumer economy within
months. That is how events played out in 2003.
“Our baseline is that it will be a fairly big
impact but relatively short-lived,” said Louis Kuijs, the Hong Kong-based head
of Asia economics at Oxford Economics.
In the hopeful view, economic damage will be
contained by the Chinese government’s aggressive response in effectively
quarantining the outbreak’s center — Wuhan, a city of 11 million people, and
much of the surrounding area in Hubei Province.
But Wuhan is a hub of industry, sometimes
called the Chicago of China, intensifying the quarantine’s implications for the
national economy.
“This is really unprecedented,” Mr. Lardy
said. “The economic effects may be much larger than SARS. Wuhan is a major
industrial city, and if you’re basically shutting it down, it’s going to have a
major effect.”
Already, China’s government has extended the
Lunar New Year holiday by three days, through Feb. 2, ensuring that migrant
workers will not return to their factory jobs as soon as anticipated, almost
certainly disrupting production. Suzhou, a major industrial city near Shanghai,
has extended the holiday until at least Feb. 8.
Given that China’s economy is the source of
roughly one-third of world economic growth, the slowdown could be felt widely.
Most directly, China’s neighbors would absorb
the effects, especially those dependent on tourists from China — among them
Hong Kong, the Philippines, Singapore, Thailand and Vietnam. Over the weekend,
China announced that it was barring overseas group tours by its citizens.
If China’s factories are hobbled by
additional restrictions on transportation that limit factory production, that
could become a global event. It could hit iron ore mines in Australia and India
that feed raw materials into China’s smelters. It could limit sales of computer
chips and glass panel displays made at plants in Malaysia and South Korea.
It could trim sales of factory machinery
produced in Germany and auto parts made in the Czech Republic, Hungary and
Poland. It could even affect the purchases of additional American farm goods
that China agreed to under the trade deal signed this month.
The shock is hitting just as China contends
with its slowest pace of economic growth in decades, reviving fears that its
reduced appetite for the goods and services of the world could jeopardize jobs
on multiple shores.
“China is obviously slowing down in a
structural way,” said Silvia Dall’Angelo, senior economist at Hermes Investment
Management in London. “The global economy is clearly more shaky, with sluggish
growth. It is clearly more vulnerable to shocks.”
The SARS outbreak prompted the government to
stimulate the Chinese economy by directing surges of credit that financed huge
infrastructure projects. But whatever damage China confronts this time, its
willingness to respond will be limited by the government’s concerns about mounting
public debt.
“They are much more constrained now,” said
Mr. Lardy, the China expert. “I think people underestimate the conviction that
the top leadership has, that they really want to reduce financial risk.”
But as global investors try to gauge the
outlook, one element is the same as ever in China: Information is scarce. Trust
in the authorities is minimal.
During the SARS outbreak, the government was
slow to acknowledge the existence of the virus as local officials actively
covered up cases, allowing the threat to multiply.
This time, the government has sought to
project the sense that it is forthrightly reckoning with the crisis. President
Xi Jinping has publicly acknowledged the threat, while warning local officials
not to hide reports of trouble.
But in the current moment of agitation, any
perceived lack of information tends to weigh in as bad news.
“This is, of course, still a government
system where transparency is not really held up as an important criterion,” Mr.
Kuijs of Oxford Economics said. “This is still an overall system in which
discretionary decisions by bureaucrats are driving everything instead of very
clear rules.”
Clifford Krauss and Matt Phillips contributed
reporting.