Coronavirus Outbreak Could Reduce China’s GDP by 1–2 Percent

A resident wears a mask to buy vegetables in the market in Wuhan, Hubei Province, China, on Jan. 23, 2020. Flights, trains, and public transport including buses, subway, and ferry services have been temporarily closed and officials have told residents to stay in town in order to help stop the outbreak of a strain of coronavirus that has killed 18 people and infected over 600 in places as far away as the United States. This week marks the start of Chinese Lunar New Year holiday, the busiest season for Chinese travelers. (Getty Images)

Commentary

The short-term economic effect from the rapidly spreading coronavirus that has infected thousands and killed dozens of people could reduce China’s gross domestic product (GDP) by 1 to 2 percent, if it’s similar to the 2003 SARS outbreak.

The World Health Organization called an emergency committee meeting for Jan. 23 to address the potential pandemic risks associated with novel coronavirus, designated “2019-nCoV,” that through its fourth-generation mutation can now spread via person-to-person transmission among close contacts, such as in families or in health care settings.

While some coronaviruses don’t infect humans, others do and commonly cause a range of mild to moderate illness; some can even cause severe illness in a high proportion of those infected. The coronavirus that was responsible for China’s 2003 outbreak of severe acute respiratory syndrome (SARS) sickened more than 8,000 people globally, and killed about 800.

The 2019-nCoV strain, believed to have originated in the Chinese city of Wuhan, has officially been reported as spreading to Thailand, Japan, South Korea, Taiwan, Singapore, Vietnam, Canada, and the United States. But the contagion has probably been exported by thousands of travelers to dozens of countries. China is seeking to limit the damage to its economy by quarantining train and air travel into and out of Wuhan, a city of 11 million, which is larger than New York City. Officials have also quarantined nearby Huanggang and Ezhou in Hubei Province.

International confidence in China’s ability to stabilize the coronavirus outbreak is being undermined by its lack of credibility in disclosing public health threats in the past. After the 2003 SARS outbreak, independent reporting forced China to admit dishonesty in underreporting the scale of infections and deaths to the World Health Organization. China later admitted 5,327 probable SARS cases and 343 deaths, 10 times its initial reporting.

An economic analysis by the Massachusetts Institute of Technology’s Center for International Development found that SARS had “significant negative impacts” on China’s economy. The tourism industry lost 50 to 60 percent of foreign revenue (amounting to $10.8 billion) and 10 percent of internal tourism revenue (amounting to $6 billion).

Combined with the economic multiplier effect, China’s 2003 economy lost $25.3 billion, or about 1 to 2 percentage points in GDP, due to SARS.

The same analysis provides a reasonable financial loss analysis for the current coronavirus outbreak. Adjusted for the fact that China’s 2019 GDP of $14.3 trillion is about 8.4 times larger than its $1.7 trillion GDP in 2003, a 1 to 2 percent lower GDP for China’s 2020 economy would amount to revenue losses of $143 billion to $286 billion.

The Chinese people didn’t feel much economic pain in 2003 from the 1 to 2 percent GDP loss from the SARS outbreak because its economic boom was so powerful that China’s 2003 GDP still grew by 10 percent.

But China’s GDP growth rate of 6 percent in the second half of 2019 was the slowest rate of growth since 1991. Given the current economic environment, the 2020 coronavirus outbreak could wipe out up to one third of China’s GDP growth.

Chriss Street is an expert in macroeconomics, technology, and national security. He has served as CEO of several companies and is an active writer with more than 1,500 publications. He also regularly provides strategy lectures to graduate students at top Southern California universities.

Views expressed in this article are opinions of the author and do not necessarily reflect the views of The Epoch Times.