If Beijing fails to contain the disease quickly, it will cause more pain for a country that was already trying to avoid a severe downturn by trying to encourage more consumer spending. An epidemic could have the opposite effect.
“If you’re trying to rebalance the Chinese economy, this is one of the last things you want to see,” said Logan Wright, director of China markets research at Rhodium Group.
The spread of the virus prompted Chinese authorities to take the largely unprecedented decision to partially lock down Wuhan, a city of 11 million people in central China where the virus originated. Airline regulators have also asked Chinese carriers to offer free cancellations on flights to Wuhan, while state media have reported that Chinese rail authorities are taking similar action.
A SARS-like scenario
China has a good sense of economy problems that could lie in wait for us.
Like SARS, the Wuhan coronavirus outbreak could spark widespread fear and cause people to hide and avoid going out. This kind of behavior would be a serious blow to the service sector, which today accounts for around 52% of the Chinese economy.
“As soon as you’re worried, you’re worried,” Carnell said. “You stay home, if you can. You don’t go out to the local food court, you try not to take public transport, you try to work from home, you don’t travel for pleasure. You don’t get on a plane, you don’t go to movies, restaurants or conferences.”
Investors are already worried about what the Wuhan virus could mean for China’s growing travel industry. Shares of the country’s three major airlines – Air China, China Southern and China Eastern – all closed 2.5% or higher in Shanghai and Hong Kong on Thursday. And the aviation sector “will likely remain under pressure as confirmed cases are expected to rise,” said Andrew Lee, equity analyst at Jefferies.
SARS also had a broader impact on the economy. China’s annual growth rate fell to 9.1% in the second quarter of 2003 from 11.1% in the first quarter of the same year, according to brokerage firm Macquarie Group.
This time around, the hit to China’s GDP could be even worse, as the sectors most directly affected now make up a larger portion of the economy, Commerzbank analyst Hao Zhou and economist Marco Wagner in a research note. For example, tourism now accounts for around 5% of China’s GDP, up from 2% in 2003.
“If history is any guide, there is clearly a risk that already struggling Chinese consumption will face new headwinds if the (Wuhan) virus cannot be effectively controlled,” Hao and Wagner wrote.
Limit the economic blow
But China is stepping up efforts to contain the virus, including Wuhan’s partial lockdown, and some lessons have been learned since 2003, when authorities were slow to release information and initially downplayed the severity of the SARS outbreak.
And as frightening as the 2003 outbreak was, experts say the impact on China’s economy was short-lived.
After SARS passed, China’s growth rebounded quickly and soared to 10% in the third quarter of 2003, according to Commerzbank’s Hao and Wagner.