The epicentre in Wuhan is under lockdown and millions of people have been strictly asked to stay at home. All events were cancelled, and many businesses remain closed, even after the Lunar New Year holiday, as the government tried to stop the virus spreading.

As most of China grinds to a halt, economists fear that it will have to brace for some serious economic consequences. A Chinese think tank, Evergrande Research Institute, recently released a report evaluating the impact of coronavirus, now officially known as COVID-19, on China’s economy. The report estimates that it may be responsible for China losing two per cent of its domestic growth rate for the first quarter 2020.

The report indicates that coronavirus significantly affected the retail, hospitality, tourism, entertainment and transport industries. The seven-day public holiday during Chinese New Year is usually called ‘the Golden Week’ by those industries, but the coronavirus outbreak happened right within that period. 

Cinemas were expected to collect $1.4 billion over those seven days and had already pre-sold $64 million in tickets for their New Year’s Day. They only ended up taking $386,000, compared to $310 million same day in 2019. Tourism was also hit hard with cancellations and all tourism hot spots shut. During the Chinese New Year in 2019, 415 million tourists generated $109 billion in tourism revenue.

This year, that figure will be a net loss. Cross country travel bans and roadblocks cost the transport industry 68.3 per cent of its business and China Rail lost over 70 per cent of its passengers and significant revenue.

Combining retail and hospitality losses, the report indicates that more than $213 billion would be wiped from the economy, which is equal to 4.6 per cent of first quarter GDP in 2019. That figure has not even considered losses from other industries. That is why the think tank predicts that even if coronavirus is contained by April, China’s annual GDP growth will drop to 5.4 per cent in 2020, down from 6.1 per cent last year.

The report compares coronavirus with the 2003 SARS outbreak and found that whilst the coronavirus fatality rate is lower than SARS, its economic impact on China would be much larger. That is because the Chinese economy is much bigger than 17 years ago, and China is an integral trading partner of the world’s biggest economies.

China faces a very different economic climate now. It has already endured financial challenges due to sluggish domestic and international demand, as well as a trade war with the US. The spillover and increasing uncertainty also make the global economy a concern, with Australia already feeling the pinch in its education and tourism industries.

However, not everything is doom and gloom. China’s most popular mobile game, Arena of Valor, made $423 million in one day on Chinese New Year’s Eve, a 53 per cent increase on 2019, thanks for the ‘stay at home’ order. Another winner is e-commerce providing fresh produce and perishables. In the past, older generations tended to resist purchasing fresh produce online as they preferred to buy from wet markets or supermarkets.

While people were restricted from nonessential travel most of the time, they started using apps to buy those products online. E-commerce companies such as Freshhema and Dingdong Maicai are reasonably happy as educating consumers in this demographic and having them to trial their services would once have been a very expensive marketing exercise. Less effort is now required.

While schools and universities remain closed, classes have started with teachers meeting their students online. Some training organisations are offering online courses and Chinese tech giant Tencent is supplying cloud-based infrastructure and technical support. Education experts believe that the coronavirus crisis has encouraged people to accept paid online courses and training, which is creating opportunities for the education and training sector to attract investors.

China’s central and local governments have implemented several fiscal and monetary measures to mitigate the coronavirus outbreak’s impact on its economy, including stimulus packages and tax relief for individuals and corporates. The government is also urging financial institutions to provide enough credit to affected hospitals, medical organisations and small to medium enterprises.

No doubt, the coronavirus crisis will add more uncertainty to a Chinese economy that has already experienced significant downward pressure. However, China is known globally for its resilience in the face of a crisis. The Chinese Government controls large amounts of resources and its strong intervention in the economy can sometimes produce effective short-term relief from major economic downturns.

The Chinese word for crisis, “危机” (weiji), is composed of two Chinese characters signifying ‘danger’ and ‘opportunity’ respectively. People tend to believe that every crisis is, at the same time, an opportunity. It is hard to tell how everything will pan out at this stage, but it is certainly worth keeping a close eye on the coronavirus situation in China, given the close correlation between the Australian and Chinese economies.