China’s Coronavirus Crisis: Economic and Political Costs

Mohamed Fayez Farahat | 13 Feb 2020

The outbreak of the novel Coronavirus in China has developed strikingly fast, making the response to this crisis not an exclusive Chinese responsibility, but rather a global duty. This is due to the characteristics of this new strain of the virus, the factors that helped the spread of the disease in a relatively short period of time, and the concerns it stirred at the international level and among ordinary people in different parts of the world.

This crisis revealed, among other things, that there has not yet developed enough interest among international relations scholars or Chinese affairs experts with specific forms of unconventional threats of Chinese origin, especially infectious and contagious viruses such as the Coronavirus. The can be attributed to three reasons:

  1. This is not the first time that China has seen the emergence of this kind of deadly and contagious virus. In 2002-2003, China experienced the outbreak of the Severe Acute Respiratory Syndrome (SARS), which was basically caused by another strain of the Coronavirus, which infected 5,327 people in China, and caused the death of 774 people worldwide.
  2. The second factor or cause is related to the spread of some viruses in certain regions or countries, such as the Ebola virus in parts of West Africa during the period 2014-2016 and its outbreak in the Democratic Republic of the Congo since 2018. In other words, the emergence of the various strains of the Coronavirus in China is related to the fact that some viruses are endemic in specific regions or countries, which necessitates further study to determine the underlying causes, the implications and the best ways to deal with it.
  3. The third factor pertains to China's special status within the global economy structure, especially in light of a high economic integration and interdependence between the Chinese economy on the one hand, and the global economy and many other national economies on the other hand. This indicates that the transfer of any health problems or epidemics from China to the world due is very probable given such deep inter-linkages. It also indicates that there is a similar likelihood for multi-level impact on the global economy, given the centrality of the Chinese economy in the global economic system.

The Evolution of the Coronavirus Crisis

According to available statistics as of the end of February 10, 2020, the death toll from the novel Coronavirus reached 1,018. It is noted that the number of daily deaths due to the virus is increasing steadily. The number of deaths on January 23 stood at 8 at the beginning, but jumped to 25 by the end of that day, then surged to 43 cases on January 30, bringing the total on that date to 213 deaths. Then it increased to 86 deaths on February 7, bringing the total deaths at that time to 724 deaths, and then another 108 deaths were reported on February 10, bringing the total death toll to 1,018, surpassing that of the SARS in the 2000s. Although the average daily death rate decreased to 12-13% during the first ten days of February, compared to an average of 36.11% during the period from January 23 to January 31, the number of deaths is expected to increase further due to the high dealt toll during February (see Table 1).

It is also noticeable that cases and deaths are still concentrated in China. Of a total of 43,104 cases as of February 10, China accounted for 42,638 cases, while the remainder was reported in other Asian countries. Also, out of a total of 1,018 deaths as of the same date, China had 1,016 deaths, while the other two cases were recorded in Hong Kong and the Philippines (see Table 2). This breakdown is particularly important because it clearly indicates that the crisis is still mainly Chinese, and has not yet evolved into a global crisis. Also, most of the cases outside China were the result of direct contact with the Chinese environment.

The Politicization of the Coronavirus Crisis: Four Patterns

Although the novel Coronavirus poses a significant and immediate threat and the possibility of it becoming a global threat, given the centrality of the Chinese economy within the global economy, and the high global economic interdependence, and instead of having worldwide cooperation to counter this threat, the current global order, in general, and US-China relations in particular, have reflected on how to deal with this threat. The Coronavirus outbreak has been somehow reduced to a highly-politicized crisis, both inside and outside China. Among the most important politicization models/ patterns revealed by the crisis, four of them can be mentioned as follows:

The first pattern relates to the Coronavirus itself and the interpretation of its origin. Some theories claim that the current strain of the Coronavirus is man-made and nothing but the product of a Chinese laboratory within a repeated and deliberate plan, aimed at forcing Western and foreign companies to sell their assets and shares and exit from China. Those who support this theory back up their argument with the fact that the Chinese government was able to purchase the assets and shares of a large number of foreign companies at low prices. They see in this alleged Chinese "plan" part of an "epidemic war" that China has resorted to as part of its economic and trade war with the United States. Further, they argue that China’s choice of “Wuhan” as the virus epicenter is because it is home to a large number foreign manufacturers and companies.

Those theorists rely on two key indicators to support their argument. The first is the timing of this "epidemic war". It started after the U.S. and China signed a trade agreement in mid-January to end the first phase of the trade war between the two countries. The agreement requires China to purchase additional US goods worth $200 billion during 2020/2021, in exchange for partial reductions in tariffs imposed in the context of this "war". According to those theorists, the release of this new virus at this time will allow China to escape its obligations under the agreement, specifically article 7 thereof, which provides for consultation by both sides in the event of an emergency situation that may prevent either of them from fulfilling its obligations.

The second indicator is the death of Doctor Li Wenliang (an ophthalmologist at China's Wuhan Central Hospital) on February 7, 2020. According to the "New York Times", "Wenliang" was one of a group of few Chinese doctors who warned of the novel "Coronavirus" before it was spread. Although Wenliang's death was caused by the same virus while treating patients in Wuhan Central Hospital, supporters of this theory insist that Wenliang was deliberately killed to prevent him from revealing the truth about the Chinese "conspiracy". Some other accounts go in the same direction that the virus was created for the purpose of using it outside China, but, because of a mistake, the virus spread inside China.

However, this "argument" lacks accuracy and challenges logic for many reasons, some of which relate to the huge economic costs and losses expected to be incurred by the Chinese economy, which may exceed the volume of Chinese imports agreed under the agreement signed with the United States, and the fact that it is in the best interest of China to see the agreement implemented. Add to this other non-economic costs that China will incur, as will be indicated later. Finally, it is important to recall that the current Coronavirus is not the first of its kind to hit regions in China, as this was preceded by a SARS outbreak between 2002 and 2003.

The second pattern raises the issue of weak public liberties in China. The supporters of this view once again relied on the death of Doctor Wenliang specifically, and the manner in which he was treated by the Chinese police after he had sent a warning to a number of his fellow doctors on December 30, 2019 via a chat group on China's WeChat app. Wenliang said at the time that he had noticed seven patients - all coming from the seafood, mammals, and live birds market in the city - with symptoms similar to those of SARS. In a subsequent message to his colleagues, Wenliang pointed out that laboratory tests had shown a positive result for SARS, but he explained in a subsequent message that the virus was in fact a different strain of the Coronavirus. Instead of seriously addressing these warnings, Wenliang was summoned by the local authorities on January 3 and accused of "spreading rumors that disturb public order" and was forced to sign a declaration/ pledge to refrain from doing so. At the same time, instructions were circulated to Chinese hospitals not to provide any information about the incident and the nature of the cases detected. [i]

At a later stage, after the outbreak of the virus, the Chinese Supreme Court confirmed on January 28, 2020 - via its spokesperson - that doctor "Wenliang" and his colleagues were treated inappropriately. The court criticized the "Wuhan" police for punishing the first whistle-blower of the virus, saying the crisis would not have become this bad if these warnings were taken seriously. The court added that if the police had shown tolerance for the doctor and his colleagues - even assuming that the information they shared was false or dubious from the police point of view - there was a possible opportunity for the city's citizens to take this information seriously, which would have led them to put on masks and avoid access to local markets early in the virus outbreak, and this could have resulted in a reduced prevalence.

It can be said that focusing on this dimension in the Coronavirus crisis will have repercussions during the next stage in China, especially since the media coverage of this dimension of the crisis and the way it was managed by China was not limited to foreign media, but also included Chinese media outlets.

The third pattern of politicizing the "Coronavirus" crisis is manifest in the political and media spat between China and the United States against the background of the virus crisis. At a time when the trade war crisis between the two countries had relatively declined after they signed the trade agreement in mid-January 2020, the hostile rhetoric between the two sides soon returned to the fore on the ground of the "Coronavirus" crisis. Remarks made by the U.S. Secretary of Commerce in which he indicated that the Coronavirus crisis may help bring back jobs to the U.S, followed by a U.S. State Department notice to raise the level of travel alert to China to the highest degree, similar to that currently applied on travel to Iraq and Afghanistan, have angered the Chinese government. In response, the Chinese Foreign Ministry on February 1, 2020 described these statements and measures as "unfriendly", and that what the American side did "certainly not a gesture of goodwill," adding: "Just as the WHO recommended against travel restrictions, the U.S. rushed to go in the opposite way. This was certainly not a gesture of goodwill."

It was remarkable that the Chinese side reaffirmed in the same context the importance of the role played by the Communist Party of China and "the enormous strength of socialism with Chinese characteristics". Further and in response to the U.S. moves, a Chinese Foreign Ministry spokeswoman said: "China has every confidence that with the resolute leadership of the Communist Party of China, the enormous strength of socialism with Chinese characteristics and the strong support from the international community, the Chinese people, fighting with one heart and mind, will definitely win the battle against the epidemic." [ii]

The fourth pattern was manifest in the acceleration of China-Russia cooperation aimed at developing an anti-Coronoavirus vaccine. Despite the great interest shown by U.S. scientists and institutes in the new strain of the virus and working to introduce an antigen, but no coordination has been announced between the U.S. institutes and their Chinese counterparts. On the other hand, Sino-Russian scientific cooperation was announced, which was confirmed by a statement issued by the Russian Consulate in the Chinese city of Guangzhou on January 29, in which it stated that Russia and China are working together to develop an anti-virus vaccine, and that Beijing delivered to Russia the genetic code of the virus. It was remarkable that this cooperation had been announced specifically by the Russian consulate in Guangzhou.

The Economic and Political Costs of the Coronavirus Crisis: A Preliminary Account

Although the high human cost of the current strain of the Coronavirus is clear, but the ramifications of the virus are not limited to this aspect, there are exorbitant economic costs that are increasingly emerging, and we can talk about an expected political cost of the crisis.

1. Economic Impact

The Coronavirus crisis is another evidence of a deep global economic interdependence. Although the heaviest economic costs of the crisis will be borne by the Chinese economy, it will have certain effects on the global economy. In general, the major impact of the crisis will hit global trade, tourism, air and maritime transport as well as stock and currency markets. Although it is difficult to come up with reliable estimates about the extent of the impact of the crisis so far, it will depend on how long it lasts, the ability of the Chinese government to control the virus and its consequences, and its success in developing an effective vaccine as quickly as possible. However, there are a number of basic scenarios projecting the impact of this crisis on the global economy and national economies.

As previously said, the Chinese economy will take most of the brunt of the crisis, especially in the sectors of tourism, transportation, trade, the automotive industry, and internal trade, due to the centrality of these sectors on the one hand, and because of the huge restrictions that have been imposed on domestic transport on the other hand. This will certainly impact domestic demand related to these sectors, and hence economic growth. According to some estimates, the Chinese economy growth will edge down from 6% in the last quarter of 2019 to about 5% or less in the first quarter of 2020, assuming that the crisis ends by the end of this quarter, which will affect actual economic growth during 2020.

The Chinese government has taken a number of measures to contain the aftermath of the crisis, the most prominent of which was the announcement by the central bank in early February to pump 300 billion Yuan (about 43 billion US dollars) into Chinese banks to facilitate credit support to the affected companies and economic sectors. However, as the crisis continues and deepens, this mechanism will remain limited in its impact and insufficient due to the massive decline in domestic demand. Add to this the very nature of Wuhan, which is a hub for automobile and steelmakers. 

The most significant impact of the crisis will manifest in a decline in Chinese demand for a number of commodities, especially oil and minerals. The decline in Chinese demand for oil, which represents an important proportion of the global demand, will necessarily lead to a decline in average oil prices, and then influence the amount of revenue of the commodity-exporting countries, and the global economy as a whole. Signs of this have already started to appear, including the decline in oil prices since the crisis erupted by about 20%, in addition to the decline in prices of basic minerals, especially copper (prices fell by 7%).

On the other hand, many international companies operating inside China have been forced to suspend their activities in the country, notably the Japanese auto giant Toyota and Apple Inc. In this regard, coffee chain Starbucks closed 2,000 branches out of a total of 4,300 branches in China (China is the company's second largest market after the United States).

On a third hand, the expected impact of the crisis on China's ability to implement the Belt and Road Initiative during 2020 cannot be overlooked, and in more than one way, especially the Chinese government’s ability to meet the financial allocations for the initiative, and its ability to increase the number of Chinese workers working in some projects outside China .

In general, the impact of the Coronavirus crisis on national economies will vary depending on the degree of their linkage with the Chinese economy.

2. The Impact on China’s Soft Power

The previous direct economic impacts of the Coronavirus crisis may result in an indirect impact on the future of China's "soft power", to which the Chinese government has paid great attention during the past two decades. In strengthening its soft power, China relies on several policies, most notably the intensification of direct interaction between the Chinese people and other peoples and countries. Among the most important documents of the Belt and Road Initiative is the "Vision and Actions on Jointly Building Silk Road Economic Belt and 21st Century Maritime Silk Road" issued on March 25, 2015 by the National Development and Reform Commission, which provides a more detailed breakdown of the Chine government's vision for the initiative. The document sets out five basic priorities for the initiative[iii]: policy coordination, facilities connectivity, unimpeded trade, financial integration, and people­-to-­people bond. In this context, the document focuses on encouraging academic, cultural and media exchanges, increasing the intake of foreign students, organizing more cultural years, film festivals, cinema and book fairs, series and films exchange, and encouraging tourism and interaction between political parties, parliaments and NGOs.

The direct impact of the Coronavirus crisis on the various forms of direct human interaction and communication, whether inside or outside China, was evident. It is not expected that this effect will disappear quickly in light of the precautionary measures and controls taken by many countries in the world to block the spread of the virus outside China. Another important tool that China has depended on in this framework is expanding foreign students’ intake at Chinese universities. The crisis has had its direct toll on foreign students (disrupting study at universities, and the evacuation of many foreign students from China). But the most serious impact of the crisis will be on how attractive China is as a destination for foreign students. Also, there have been reports of harassment against Chinese communities abroad. In addition to these impacts, this novel Coronavirus crisis has kicked off a debate on Chinese food styles and habits, linking them directly to the emergence of Corona viruses.

Thus, these types of impact will leave their toll on the China's soft power resources and tools. This poses huge challenges for the Chinese government to try to overcome this crisis and deal with it, and to send confident messages that the occurrence of such crises will be less likely in the future.

3. Political Impact

Aside from the aforementioned various forms and patterns of politicizing the Coronavirus crisis, there will still be some political costs of the crisis. The most prominent of these costs is related to the way in which the Chinese police in Wuhan dealt with Doctor Wenliang. The way the doctor was treated, and the Supreme Court's rebuke of the police, and the death of the doctor himself from the same virus, stirred a public debate on social media inside China on several issues, including the way alerts and warnings of a professional nature over serious issues such as the "Coronavirus" are dealt with and the question of public freedoms in a country as large as China. The significance of this debate and the speed of its spread have been further increased by several factors, the most important of which is the Supreme Court's reprimand of the "Wuhan Police" on social media, the fact that doctor "Wenliang" was a young man (34 years) representing a large segment of the population and the massive number of Chinese online compared to the SARS era less than two decades ago (according to data by China's internet regulator, the number of Internet users in the country skyrocketed from 68 million in 2003 to 829 million in 2018). These factors also include the evolution of the Coronavirus crisis into a real crisis in which human costs outweigh the SARS crisis. According to many news reports, Chinese Internet users created many relevant hashtags, some of which were straightforward, such as: "The Wuhan government owes Dr. Li Wenliang an apology" and "We want freedom of expression." Some were indirect, such as: "Can you manage? Do you understand?" in an attempt to simulate the questions asked to Doctor "Wenliang" in the police document he was forced to sign.

There is no doubt that this debate will leave an impact on the degree of trust in some Chinese institutions, the way warnings of a professional nature are handled, as well as the link that will be made between weak public freedoms in China and the efficiency of managing crises of a professional nature.

What next?

Finally, it is expected that the current Coronavirus crisis will bring up a central and frequent question the Chinese government needs to find answer to: “For how long will China remain an environment conducive to the emergence of deadly, epidemic or semi-epidemic viruses?”. This question, regardless of its accuracy or relevance, will require the Chinese authorities to roll out a set of countermeasures and conduct reviews including, but not limited to, the following: the necessity of setting controls on some local markets and some consumer and food patterns; addressing this type of threat as a common "global" threat, which necessitates openness and cooperation with different countries, especially developed and most scientifically advanced countries, to introduce effective antigens to address this type of virus, after it has been proven that controlling its spread outside of China has come at high costs that basically undermine current Chinese economic policies and principles. At the forefront of these is China's commitment to a policy of economic openness, financial and economic globalization, and accelerating the integration between the Chinese economy and other economies within the Belt and Road Initiative with its land and sea components.

 

* Egyptian Expert on Chinese and Asian affairs.

References

[i] See: Yong Xiong and Nectar Gan, “This Chinese doctor tried to save lives, but was silenced. Now he has coronavirus”, CNN. February 4, 2020. Available at: https://edition.cnn.com/2020/02/03/asia/coronavirus-doctor-whistle-blower-intl-hnk/index.html

[ii] Foreign Ministry Spokesperson Hua Chunying's Comments to the Press on Unfriendly US Remarks Amid China's Fight Against the Outbreak, February 1, 2020. Available at: https://www.fmprc.gov.cn/mfa_eng/xwfw_665399/s2510_665401/2535_665405/t1738551.shtml

[iii] National Development and Reform commission, Ministry of Foreign Affairs, and Ministry of Commerce of the People’s Republic of China, “vision and Actions on Jointly Building Silk Road Economic Belt and 21st Century Maritime Silk Road”, China, 28 March 2015. Available at: http://en.ndrc.gov.cn/newsrelease/201503/t20150330_669367.html  

 

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