Impact of Covid-19 on the economy of China
Abstract
The essay explores the economic effect of Coronavirus (Covid-19) on the economy of China. The eventual outcome of COVID-19 in China is that it will be under control after lots and lots of people are infected, and the economy has gone into recession. While the economic impact will likely not last more than three or four months, at most, it will be more profound than the worst days of the county in terms of the number of people out of work during that time and terms of the amount of the country’s loss of wealth. Of course, a large part of the losses in the stock market may be recovered if the market goes back up again. But the country will have still lost the production of the equivalent of years of output from Chinese workers, and there is nothing that can stop that. The most affected sector within the country is the tourism sector since airlines have been suspended to and from the Chinese mainland. This does affect not only the tourism sector but also other sectors, including the hotel industry, where tourists get to spend more of their time. Lastly, the essay analyzes the impact on the financial sector.
China had improved its economy drastically, such that they had an ongoing war in terms of trade with the U.S. whose growth was declining. As of 2017, the value of total exports from China totaled $2.26 trillion; this includes items such as electronic equipment, high tech products, data processing parts and equipment, mobile phones and its parts, clothing, textile, integrated circuits, steel, shoes, furniture among other items (Ayittey et al. n.d). However, most of the Chinese flights, including British Airways and Delta were canceled, as governments imposed travel restrictions to and from China. Domestic rail trips plummeted more than 75%, while its tourism industry is in a tailspin as the Chinese stay home and foreigners avoid the country. This implies that there is no importation and exportation within the country; thus, destabilizing its economy. On January 20th, the activities of the major port of China fell by 20%. Even oil prices experienced a fall since the demand weakens in China despite being the largest world oil exporter (Ayittey et al. n.d). Automakers from Nissan to Honda and American giants Apple and Nike all have massive operations in China that have been impacted as well. The impact of Covid-19 on the economy of China is illustrated below.
Figure 1: The impact of Covid-19 on the economy of China
Source: (Weinland, and Liu, n.d)
The most impacted sector in China is the tourism sector. Airlines from all over the world have suspended their flights to and from the Chinese mainland, visas and travel documents approval has been suspended even canceled out of safety and operational concerns related to the virus (Weinland, and Liu, n.d). The sudden decisions have left many Chinese tourists in trouble. Some analysts are not much optimistic about the possibility that domestic travel will bounce back soon. Wang Dan, an analyst at the Economist Intelligence Unit, said, “I think it’s a very safe estimate that probably the tourism industry will not fully recover until later in the year, probably December.” A data analyst from Ctrip, a Chinese online tourism giant, said that the impact of the coronavirus outbreak is huge. As of February 3, millions of bookings through Ctrip have been refunded, including tens of thousands of orders to be canceled, and countless demands for transportation changes. The specific loss is still under calculation. Zeng Bowie, China Tourism Economy and Policy Research Center of Beijing Union University director, expressed that in addition to travel agencies, scenic spots and attractions are secondly impacted, and followed by the accommodation industry. Compared with the traditional hotel industry, the loss of the home-stay or hostels will be greater. Its service objects are mostly independent visitors, which are almost zero during the epidemic. Others, such as catering and performing arts, have also been significantly impacted.
The Covid-19 outbreak has adversely impacted the financial sector. The central government of China decided to engage in comprehensive and rapid response towards the outbreak through enforcing lockdown in Wuhan as well as setting up travel restrictions and partial quarantines in all autonomous regions, provinces, and municipalities within the country (Fernandes, n.d). Accordingly, global and Chinese citizens have to be realistic. The domestic economy has to incur dismal prospects within the mid and short-term outlook. Nonetheless, rights conditions are set so that the country could undergo structural reforms. At the same time, the People’s Bank of China (PBOC) and Beijing are prepared to provide the necessary financial assistance to stabilize the economy domestically as a way of staving off potential international recession predicament. Recently, the PBOC released liquidity to the banks of the nation through slashing the Reserve Requirement Ratio (RRR), decreasing the Loan Prime Rate (LPR), the benchmarking rate of lending. Additionally, the PBOC decided to pour US$ 349 billion (1.2 trillion yuan) into the financial market and banking system in February (Fernandes, n.d) to help in combatting the pandemic. Additionally, with the increased population of unemployment within the country and expenditure on battling the virus, the government will continue to incur a lot in the coming days, which will eventually destabilize the economy more. Chinese Central Government is stepping up to the plate as well. Chinese President Xi Jinping hosted an unprecedented high profile meeting in the form of a teleconference with officials from county-level Party and government organizations and above from across the nation to address significant task for the country in response to the COVID-19 outbreak. Plans are underway to introduce more targeted tax cuts to stabilize employment and to restore normal economic activities.
Works Cited
Weinland, Don, and Xinning Liu. “Chinese Economy Suffers Record Blow From Coronavirus.” Financial Times, 2020, https://www.ft.com/content/318ae26c-6733-11ea-800d-da70cff6e4d3. Accessed 2 May 2020.
Fernandes, Nuno. “Economic effects of coronavirus outbreak (COVID-19) on the world economy.” Available at SSRN 3557504 (2020).
Ayittey, Foster Kofi, et al. “Economic impacts of Wuhan 2019‐nCoV on China and the world.” Journal of Medical Virology (2020).