Coronavirus outbreak: how will the Chinese economy react?

Shanghai, January 30th 2020


As a result of the outbreak of the 2019-nCoV, at least 170 people are dead and over 7,800 cases have been confirmed in Mainland China, at the time of writing. The virus has also spread globally and reached 17 countries, with 84 confirmed cases.

China is sparing no effort in trying to contain the spread of virus and saving lives. There was a marked shift in the handling of the outbreak once China’s national government got involved on January 22. Since then, China adopted severe lockdown measures: nearly 60 million people are under partial or full lockdowns in several Chinese cities in Central China. All outbound group tours have been suspended. Across China, local city governments have shut down public places, museums, gyms and the likes. Schools and non-essential workplaces opening have been postponed, and inter-provincial travel has been restricted.

Looking at positives, public awareness is very high, because of the rapid official response in China and the internet and social media. Situation in Wuhan seems stable, and citizens are staying at home. There are videos of entire apartment blocks in Wuhan, where its citizens have opened their windows to chant loudly “Jiayou, Wuhan” (Mandarin for: “keep going, don’t give up, Wuhan”).

While it is too early to draw definitive conclusions, the current outbreak hopefully will not be as deadly as SARS, which killed over 700 people worldwide, but the Wuhan Coronavirus seems to have spread more rapidly. That could either be due to being more contagious, or to the increased interconnectedness of both China and the world as respect to 2003.

All the lockdown measures will inevitably cause short-term harm to China’s economy; in terms of social and economic impact. Despite being in Chinese New Year holiday break, restaurants, movie theatres, tourist and entertainment facilities have been closed or are doing minimal business because of the virus. New movie releases—usually a billion-dollar trade at the New Year break—have been cancelled or indefinitely postponed. Disney closed sine die its Disneyland parks in both Shanghai and Hong Kong.

In order to stave off the spread of the virus, the Chinese New Year holiday, set originally to end on January 30, has been extended nationwide until February 2, but many cities (Shanghai among them) have already announced it will be further extended until February 9th.

Chinese New Year comes with a mass migration, with millions of people travelling back to their hometowns to spend time with their families and then back to the cities where they work. With the new travelling restrictions now imposed, tens of millions of people are stuck out of place and cannot come back to work. Some factories that produce critically needed supplies such as sanitary masks have already reopened, but they are facing severe staff shortages and are now offering three or four times the usual wages.

However, it would be naive to consider the outbreak a problem that will affect China’s economy alone. Among the first countries that will feel the pain are China’s closest neighbours, most of whom will have limited travel and tourism; Thailand, for example, stands to lose more than $1 billion from interrupted travel, but Hong Kong, South Korea, Japan, and others will surely be impacted too.

Nevertheless, for any business operating in China, or in any way exposed to the demand from Chinese consumers, it is important to always put things in a long-term perspective.

First of all, the cities locked down are all near Wuhan, in Hubei province, where coronavirus originated. So far, the lockdown affects around 60 million people out of a population of 1.4 billion. Likewise, Hubei province only accounts for about 4.7% of China’s overall GDP, according to the National Bureau of Statistics of China.

Past scandals, such as the melamine milk disaster of 2008, permanently increased Chinese demand for manufactured food products from abroad. If the origins of the coronavirus are blamed on a lack of domestic safety standards, the Chinese middle class’ appetite for foreign products could rise further.

Likewise, the beginning of the Year of the Rat will be somehow a traumatic memory for many Chinese. The Chinese consumers will need to be re-assured and will remember who stood by their side in the direst times, thus creating business opportunity for marketers in any consumer industry.

The most obvious opportunity is handed on a silver platter for producers of imported food and health supplements. Now, more than ever, is the time to remind Chinese consumers about any health and immune system boosting benefits of such products. Likewise, we think there is massive opportunity for producers of home and laundry cleaning products. For such products, China is still a largely underpenetrated market, which will surely grow much faster now that Chinese people are self-educating and understanding more the importance of hygiene and sanitization in their homes and shared spaces.

But the opportunities are not limited to the most obvious product categories. Any business can look for ways to benefit from the suddenly increased free time and attention of Chinese consumers and to contribute to China’s efforts to get back to a normal life as soon as possible. For example, since schools in China are postponing spring semester classes, online education providers are getting a chance to show what they have to offer. Alibaba’s Youku, China’s answer to YouTube, announced on Monday that it will launch online classes for primary and secondary school students. The classes will be free with the help of another Alibaba product called DingTalk, an office communication tool similar to Slack. State media has reported that nearly 50 primary and secondary schools in Hubei province, of which Wuhan is the capital, have joined the program. Other companies are making similar moves. The largest private education provider in China, New Oriental Group, is offering 1 million free online classes to school kids while K12 edtech unicorn Squirrel AI is cancelling in-person classes and switching to online. Online education company iTutor also decided to offer its online teaching platform for free. Since the start of the outbreak, tech companies including Tencent, Alibaba, Baidu and Meituan, among many others, have donated funds and medical supplies and garnered massive praise from the Chinese people.

Jiayou, China!