Coronavirus: the economic cost is mounting across China

The human cost of the coronavirus outbreak is climbing across China and beyond. The economic cost is also mounting, mainly, but not only, in China.

That damage to economy is, for the most part, not due to the virus itself so much as efforts to prevent it spreading.

The effected area of Wuhan is completely sealed, where the outbreak began, a city with a population of 11 million.

That lockdown is now extended to other parts of Hubei province, ultimately preventing the business related travel as well as the movement of goods and workers.

The mounting fear of the virus also means many people will choose to avoid the activities they think might expose them to the risk of that deadly virus. Hence, in effect the restaurants, cinemas, transport providers, hotels and shops are all quickly feeling the impact with less customers.

Another noticeable thing is the timing of that health crisis, during the lunar New Year break, that also means those industries have been particularly exposed to commercial losses. New Year holiday was extended for a few days by the national Chinese authorities, and there have been longer extensions imposed by some provincial authorities, also delaying return to work for some businesses even longer.

The delays in resuming the production and selling goods is likely to lead to other problems like, cash-flow problems, especially for the smaller operations. Many companies will have to continue paying the bills, that also includes employees’ pay and forĀ  manufacturers selling goods abroad, there may be some issues with buyers becoming more reluctant to buy from China.

Herbert Wun owns Wing Sang Electrical, which makes products such as hair-straighteners and blow-dryers in Guangdong province, told that many companies would not have much slack to take this kind of impact, coming, as it did, on top of the US-China trade war. And the epidemic “will add to the pressure on customers trying to shift their supply chain away from China”.

The impact is not confined to China. International retailers, the furniture seller Ikea and the coffee shop chain Starbucks have closed operations in China. Several overseas airlines have stopped flights to China and international hotel chains have been offering refunds. And beyond that, there is growing concern about integrated international supply chains.

China has a much bigger role in these networks than it did at the time of the last major health problem that emerged from the country, the severe acute respiratory syndrome (Sars) virus 17 years ago.

Hyundai, of South Korea, has suspended its car production because of problems with the supply of parts from its operation in China – an early warning sign of possible extensive disruption ahead.

China is an important supplier for the global motor industry and the electronics sector. Many mobile phones and computers are made in China or at least have components manufactured there.

Financial markets have also felt the effect of the health crisis.

Stock markets around the world are lower than they were two weeks ago. China’s market fell 8% on the first day of trading after the holiday. There has been a particularly marked impact on the prices of industrial commodities, as China is such an important buyer.