CORONA VIRUS AND CHINA'S REBOUNDING CAPACITY

CORONA VIRUS AND CHINA’S REBOUNDING CAPACITY

          Corona viruses (CoV) are a large family of viruses causing illnesses ranging from the common cold to really severe diseases like the Middle East Respiratory Syndrome (MERS-CoV) and Severe Acute Respiratory Syndrome (SARS-CoV).  This novel corona virus (nCoV) is a new train that has not been previously identified in humans.

          They are zoonatic literally translating that they are transmitted between animals and humans.  Investigations revealed that SARS-CoV was transmitted from civet cats to humans and MERS-CoV from dromedary camels to humans.  There are several other known corona viruses that are circulating in animals but that have not yet infected humans. 

Common signs of infection to watch out for are respiratory symptoms, fever, cough, shortness of breath and breathing difficulties. In more severe cases, infection can lead to pneumonia, severe acute respiratory syndrome, kidney failure and ultimately even death. 

Standard protocols to prevent infection spread include regular hand washing, covering mouth and nose when coughing and sneezing and more importantly thoroughly cooking meat and eggs. And it is advised to religiously avoid close contact with anyone showing symptoms of respiratory illness such as coughing and sneezing.

So much for what corona virus is. 

China’s business leaders have always maintained the invisible line of leaving politics to the Communist Party.  That will ensure that they, the business leaders, make money in peace.

However, this time tested formula was upended by a vicious viral outbreak.  The country’s hyper economy has thrashed down to ground zero and every business activity has ground to a halt.  The authorities are up in arms battling a corona virus that has, so far, killed more than 2000 people and sickened thousands more.

Liang warned that “if the country becomes poorer because of emergency health measures, that might hurt public health more than the virus itself”.

Now, back to square one.  Hundreds of millions of people are now living essentially in isolation as roadblocks have sealed off entire towns.  The local authorities have also restricted companies from reopening.

Let’s now have a look at the larger picture about Corona Virus and its implications.

While China should mandatorily do everything in its capacity to arrest the outbreak, business leaders and economists argue that some of its methods are proving hurtful to the lives and livelihoods of millions of people while contributing little or nothing to the containment effort.

Again James Liang, Executive Chairman, Trip.com, China’s dominant online travel agency, wrote : “Strike a balance that is conducive to protecting lives”.

There are no two opinions about the fact that the disease is a very serious and lurking danger, especially in Hubei province and its capital, Wuhan.  Nearly 70,000 people have already been stricken according to official figures.  Foreign medical experts are of the view that the true total figures may be much higher.

On the other side of the coin, business leaders and economists in China have raised questions as to whether the mandatory 14-day quarantines, roadblocks and checkpoints are truly necessary across the country particularly in provinces distant from Hubei where there have been relatively few cases.  A difficult question to answer indeed.

The Communist Party has swiftly started tightening its grip on many aspects of Chinese life.  China is a country where dissent is normally censored or squelched. Subjects as simple as business and economy have grown very sensitive as the country’s economy has slowed down.

However, even the Chinese government has been flummoxed for once.  It has painfully acknowledged the wounds that have been inflicted on the country’s economy.

Li Xingquian, Director of foreign investment, Commerce Ministry said :

“If the epidemic lasts for a long time, agricultural products, food and industries with long industrial chains and labor-intensive industries are expected to be greated affected”.

          And the ripples are spreading far beyond China hurting companies like Apple, General Motors, and Adidas. Amazon, the e-retailing giant is trying to make hay while the sun shines by striving to keep its virtual shelves stocked.

          Beijing is urging its officials to ceaselessly wage “the people’s war”. However, it is indeed a very difficult balancing act. 

          Simultaneously, Beijing is also going the extra mile to help its workers and farmers by cutting down lending rates.  This brings more access to money to stimulate farmers and workers to get back to their jobs.

          According to a survey of 1,000 business owners by Peking University and Tsinghua University, many of China’s businesses, mainly, small ones appear to be in deep trouble.  One third of small firms in China will be bereft of cash over the next four weeks while another one third will run out of cash in the next two months.  A very bleak picture is presenting itself to China for the first time.

          Beijing is now up against a wall.  An iron wall at that.  Surprisingly, news Daya on Thursday showed that the number of newly confirmed infections had taken a nose dive.  The sting is that much of that nose dive appeared to reflect a narrowing in the definition of a confirmed infection.

          Zheng Jin, the spokeswoman for the Shanghai Municipal Health Commission, said :          “We actively support the orderly resumption of work and production, but we still cannot relax our vigilance in the slightest”.

          Indications of progress wrapped up with growing worries over the plunging economy have spurred calls for Beijing to loosen up.

          The Peking University Chinese economists and the brokerage Huachuang Securities wrote an online analysis about the containment effort.  They highlighted the sad fact that too many areas of China were trying hard to stop the virus, so much so that they were preventing normal commerce among cities.

          I quote from an essay in Caixin, China’s best regarded publication :

“If all regions rely on blocking, they may block viruses, but they may also block the economy.  At that time, a wave of corporate closures and unemployment may occur, worse than the current epidemic.”

Though this may appear over emphasized, that is reality.  And reality here appears to be threatening.

          It is necessary to restore normal urban life for the Chinese economy to rebound.  No single business or city can resume regular activity on its own because every company and community requires materials and workers from elsewhere.

          If Beijing decides to ease back a little too quickly, it would result in the congregation of large numbers of labourers and workers in factories and offices which may again reinvigorate the spread of the corona virus – something that neither the Chinese business leaders nor the Government desires to confront.

      E-commerce China Dangdang was faced with such an unfortunate situation last week.  One of its employees ran a fever on Tuesday and by Wednesday was diagnosed positive for corona virus by the Chinese Center for Disease Control and Prevention.

        While working from home is an option for companies like Dangdang, manufacturers and factories continue to operate at a small fraction of the capacity.  The world business is now a sad witness to dwindling Chinese products and components.

          However, for Chinese citizens this is not the end of the road.  The Government is initiating incremental moves for the movement of people and goods.  Migrant workers are being transported back from hometowns they visited over the recent Lunar New Year holiday.  Special trains are being arranged.  High speed trains have been put in place to transport workers from central Henan province and western Sichuan province. 

          Out of the box thinking is the need of the hour in China. And the Government is proving it true.  Xi’an a city in north western China offered a one time subsidy of $ 285 for each worker hired by companies making medical protective gear and $ 430 per worker for companies of any industry hiring large numbers.

          Another side of the coin is that food prices were surging more than 15% a year in China by last autumn.  The main cause for this is a different epidemic, namely, the African swine fever, that had killed half the country’s pigs, their main source of protein.

      The Chinese Agricultural Ministry has directed villages all over to dismantle roadblocks and checkpoints to facilitate movement of animal feed and livestock. 

          However, there are already reports of mass slaughter of poultry due to lack of feed and plunging of chicken prices – a possible sign of panic selling. 

           Lu of Industrial Bank wrote :

“The overall impact of production shutdowns on agriculture across the country cannot be underestimated.”

         Another frustrating offshoot of the corona virus is that air travel and travellers would redirect their journeys to anywhere other than China.  Hence, the tourist segment of China will also suffer a major setback and loss.

        Most airlines have announced suspension of flights to Shanghai, Hong Kong, Guangzhou and Chengdu into June. 

        Though China accounts for only 2% of international seat capacity for Indian Airlines, the China segment was doing very well before the suspension. If the Corona Virus is not curtailed swiftly, key segments like Thailand and Singapore will also crash resulting in severe negative revenue impact. 

       There is every possibility of the European travellers shifting their vacation destinations from Asia to Europe.  These were indicated strongly during the earlier outbreaks of SARS and bird flu.

         China is everywhere and in every country’s economy.  And so when China struggles, the whole world economy struggles with it.

China is the key supplier of aircraft components.  When Airbus’ completion center for A320 and A330 models of Indian aircrafts in Tianjin was shut down briefly, Indian aircraft industry suffered terribly due to delayed aircraft deliveries.

French Aviation giant Safran, which supplies engines, avionics, safety and landing systems, had also shut down its manufacturing facilities across more than 20 Chinese cities.

Finally international concern about the spread of corona virus outside China increased on Sunday with steep rise in infections in South Korea, Italy and Iran. 

The virus has, so far, ended 2,442 lives in China out of reported 76,936 cases.  It has also spread to over 26 other countries and territories. 

Sadly, Chinese President, Xi Jinping acknowledged on Sunday that there were obvious shortcomings in the response to the epidemic.  He further urged the officials to learn lessons and improve their skills to respond to public health emergencies.

All said and done, this is a very difficult and trying phase not only for China but for the entire world.  How China is going to emerge out of it and how and when the world economy is going to rebound back to its original state is for all of us to wait and watch.