Knock-On Effects of China’s Coronavirus May Be Worse Than Thought

Foreign Policy ^ | February 3, 2020, 10:06 AM | Keith Johnson, James Palmer

[Zhang Fei]

Economists and analysts still caution that the full economic fallout depends on how well China can ultimately contain the outbreak and on whether the return to work—especially for migrant laborers, who make up a substantial part of China’s manufacturing workforce—can be managed smoothly. But most expect Chinese growth in the first quarter of the year to slide sharply, before rebounding later in the year to finish not much worse than the 6 percent increase in GDP China posted last year.

Within China, the outbreak and the government’s response—essentially firewalling off nearly 100 million people in central Hubei province, where the virus broke out—already have impacted a host of sectors, from hospitality and retail to airlines, insurance, and manufacturing. Numerous cities and towns have implemented their own quarantine measures. Among the most restrictive are those in Wenzhou, the city worst hit by the virus outside Hubei and a major cog in China’s maritime trade.

Migrant laborers have also been particularly badly hit, both due to widespread prejudice against them as perceived carriers of the virus and because the new year is usually when they seek new employment. For those who are able to look for work, however, wages are high.

“I’m paying out 150 percent of the usual salaries right now,” Li, a factory owner in the industrial city of Tangshan, far from the virus’s epicenter, explained over the phone. “Almost nobody is available.”

When trying to assess just how painful the outbreak will be for the world’s second-largest economy, most analysts reach back to the 2003 SARS outbreak, which knocked off an estimated 1 percent or more from China’s growth rate. But the consensus now is that the coronavirus will have an even bigger impact than SARS—for several reasons.

First, the Chinese economy is a lot, lot bigger than it

[Zhang Fei]

China will probably resort to draconian administrative measures as well as a general loosening of economic policy in order to prop an epidemic-ravaged economy up. The bottom line impact will be bigger than the tariff war. The question is whether the administrative measures and economic loosening will be able to take up the slack.

[BobL]

I agree. Their ‘Great Bargain’ with ‘the people’ is to provide them with prosperity, in exchange for them staying out of politics and ‘trusting’ their central government. The implied promise was also for the central government to behave in a responsible manner - and their response to this outbreak is NOT cutting it.

I would expect desperate moves by the government, just to keep the people from starving, and if they don’t come through (which may not even be possible now), their control over the country will be in question.

[lepton]

There’s also the issue of how long lasting the after-effects of the disease are. I’ve seen reports which suggest lung scarring is common.

[DoughtyOne]

There has been a lot of talk about China being in the cat-bird’s seat with regard to global economics. Their economy was growing at a fast pace. Some thought they would soon eclipse the U. S.

To see how important China is to our economy, with all the disaster taking place there and utter disruption, our stock market has closed at a new all time high today.

29,290.85

China is not closed for business, but it is in serious trouble right now.

I don’t like seeing the people of China have to go through this.

Still, the U. S. does need to be seen a the global power-house it is, and not as some declining nation at the mercy of the new kid on the block.

Good luck to the Chinese people dealing with 2019 nCoV.

I’m sorry to see yet another viral infection decimate so many people, their families, and their economic well being.

[null and void]

Bring Out Your Dead

Post to me or FReep mail to be on/off the Bring Out Your Dead ping list.

The purpose of the “Bring Out Your Dead” ping list (formerly the “Ebola” ping list) is very early warning of emerging pandemics, as such it has a high false positive rate.

So far the false positive rate is 100%.

At some point we may well have a high mortality pandemic, and likely as not the “Bring Out Your Dead” threads will miss the beginning entirely.

*sigh* Such is life, and death...

If a quarantine saves just one child's life, it's worth it.

[Truthoverpower]

Fear and disinformation combined are a real bitch!

[mythenjoseph]

I am puzzled when in the article it states that “migrant” workers may be disrupted? Are these person’s from another province in China or ? Supposedly they have 1.3 BILLION people so I am just curious....I find it hard to raise any empathy for a population that allows itself to be dominated so brutally by their own corrupt Godless government....

[ModelBreaker]

I expected to see more discussion about US and European supply chain disruption and liquidity problems. I don’t see how quarantine of 100 million people (more than the size of CA and NY combined) cannot have profound effects on the stock, banking and insurance sectors worldwide.

That our stock market is barely affected so far is shocking. It suggests that the scope of the problem may be exaggerated. Folks at the DOD and NSA have a pretty solid handle on the scale of the problem — cities and provinces being shut down shows up on satellite. And that information should have affected the markets by now if the information is as bad as a lot of the articles I see.

[Zhang Fei]

https://en.wikipedia.org/wiki/Hukou

[OpusatFR]

If the coronavirus is as bad as some reports have said, this might be an epoch changing plague much like the Black Death which caused Europe’s feudal system to collapse.

[ProtectOurFreedom]

It would be interesting to look at the shift of equities from International (especially Asia and China) to domestic in the past couple weeks. I wonder if money flowing out of Chinese firms is flowing into U.S. firms. That would propel the U.S. equities markets.

Like you, I suspect we are in for a real roller coaster in our equities markets as this bug gets a strong foothold in North America and Europe.

[ProtectOurFreedom]

That struck me too. I had no idea that China had a large migrant workforce. It was mentioned in only two paragraphs in the story...

Economists and analysts still caution that the full economic fallout depends on how well China can ultimately contain the outbreak and on whether the return to work—especially for migrant laborers, who make up a substantial part of China’s manufacturing workforce—can be managed smoothly.

Migrant laborers have also been particularly badly hit, both due to widespread prejudice against them as perceived carriers of the virus and because the new year is usually when they seek new employment. For those who are able to look for work, however, wages are high.

There must be a lot of seasonal manufacturing in China that shuts down for part of the year. We all know that agriculture is especially seasonal and retail sales is highly seasonal around the holidays. But manufacturing? That's a new one on me.

[Zhang Fei]

[If the coronavirus is as bad as some reports have said, this might be an epoch changing plague much like the Black Death which caused Europe’s feudal system to collapse.]

---

There’s a lot of deflection of blame towards local officials in the Party’s narrative. Except in China, top level local leaders are not local. In order to retain central control and prevent local leaders from cultivating power bases that might feed separatist tendencies in times of turmoil, senior officials are not only helicoptered in from other provinces, they are also rotated periodically in order to prevent them from going native. This is how the Chinese empire has been held together for thousands of years. The regimes change, but the methods remain the same. These “local” leaders will quite literally call a deer a horse, if told to do so by Xi Jinping.

https://en.m.wikipedia.org/wiki/Zhao_Gao#Calling_a_deer_a_horse

You can’t even call these “local” officials carpetbaggers, since carpetbaggers planned to set down roots. This history, of a vast empire insensitive to local problems, is possibly one of the reasons China has gone through many more successful internal revolts, led by peasants all the way up to top level courtiers, than just about any polity I can think of. The top level “local” officials, being short-timers and outsiders appointed by the central government more or less as hall monitors to ensure that any separatist tendencies are kept in check, are neither in place long enough to understand local issues nor particularly inclined to do much beyond ticket-punching and perhaps acquiring personal wealth through large scale graft. It’s a system with a built-in internal time bomb.

[familyop]

Quite a few manufacturing plants in China have stopped running for now. I saw a headline saying that one is planned to reopen soon. Will send you a PM.

[Zhang Fei]

[There must be a lot of seasonal manufacturing in China that shuts down for part of the year. We all know that agriculture is especially seasonal and retail sales is highly seasonal around the holidays. But manufacturing? That’s a new one on me. ]

---

It’s not seasonal. China’s labor market is red-hot. Because it started out from a tiny base (GDP per capita-wise), thanks to 30 years of top down economic management down to the tiniest detail (i.e. housing, clothing and food allowances and work assignments were decided by some party cadre), Chinese wages were at African levels prior to economic liberalization in the late 70’s. Since then, Chinese wages have gone up 40x in 40 years. Because the base back in the 70’s was so low, that’s currently about $8K a year.

What workers do is look for new jobs after the Lunar New Year celebrations, because wages have always ratcheted up. The single child policy initiated in the late 70’s means that the labor force is aging, such that every new labor cohort that comes of age every year is smaller than the last. This is driving wages gains every single year.

The migrant labor question is explored in this entry:

https://en.wikipedia.org/wiki/Hukou

[Ozark Tom]

“Tencent leak”

[ProtectOurFreedom]

Thanks for clarifying that and the link. I look forward to reading it.

When I worked in China in late ‘76 to early ‘77, my interpreter was given his job assignment by the party. He was an amazing concert violinist, but the State already had enough of those. So he was told “You’re new an interpreter.”

[Vince Ferrer]

There is money coming in to the US. It has caused another yield inversion, which people are interpreting as a sign of recession, but it isn’t.

[heavy metal]

it’s one for the record books when china produces a knock on of something instead of a knock off...

[nicollo]

I had no idea that China had a large migrant workforce.

China is extremely local and provincial. To move from one region/province to another requires permits and permissions and is tracked rigorously (as well as socially). These people are, to them, "migrants."