Veronica Min, her husband, and their four-year-old daughter should be living it up on a beach in Australia.
Instead, they’re stuck in Shanghai, unable to leave and unsure when they can return to work. The couple canceled their flights to Melbourne on January 1, just hours before Australian Prime Minister Scott Morrison put a ban on all passengers arriving from China in a bid to quell the spread of the deadly coronavirus, which was discovered in the central Chinese city of Wuhan in mid-December.
Cities under lockdown
Wuhan, a city of 11 million and an important base for the auto, tech and healthcare industries, has been forcibly shut down since January 23. In all, 16 cities in the same province have been put under some kind of lockdown and other areas are also imposing restrictions on the movement of their citizens.
Many analysts are comparing the potential economic impact of coronavirus to SARS, which wiped an estimated 1% off China’s growth rate when it swept across the country and the wider region in 2003, claiming 774 lives in the process.
But with the new virus having spread further across China and the world, a higher infection rate than SARS, the inopportune timing of its appearance right before the world’s biggest annual migration, when hundreds of millions of people travel across the country for family reunions before and after the Lunar New Year, and a Chinese economy that is bigger and more globally connected than it was in 2003, the potential fallout from this perfect storm is huge, affecting workers from San Francisco to Shanghai.
Veronica finds herself in the same uncertain situation as millions of other workers who have been left in limbo since the Chinese government extended the annual new year holiday.
Shanghai and Beijing, along with 12 other provinces and cities, have told businesses to remain shuttered until February 10. The areas affected by the so-called “delay of work resumption period” account for around 70% of China’s GDP and 80% of its exports, meaning the knock-on economic effect is likely to be felt around the world.
But with only vague guidelines about whether those working from app德扑圈官方网址home during this period should be paid double time (as is standard during a normal public holiday) or whether those unwilling or unable to work should see the days docked from their annual leave, the country’s young workforce is facing money worries closer to app德扑圈官方网址home.
Veronica’s main reason for staying in Shanghai is not fear of the virus, an attempt to calm her anxious mother, or even the worry that they, as Chinese residents, would face discrimination overseas. Veronica’s employer, one of the world’s biggest luxury retail groups, stipulated that all staff embarking on independent travel must commit to self-imposed quarantine on return to China — a two week period away from work that would either be unpaid or deducted from annual leave allowances.
“I work for a big luxury group so I’m probably going to be okay, but I think over the next couple of months business will be bad,” 36-year-old Veronica told Money Under 30, explaining that the brand’s stores are currently only opening for five hours a day. “Even when everyone goes back to work as normal, people will still be worried and won’t want to go out to public places. Our business will definitely suffer and that will affect my annual bonus,” she added. “Right now, we think we’re going back to work on February 10, but maybe the government will decide to extend longer.”
Oxford Economics cut its growth forecast for China by more than two percentage points for the first quarter of 2020, predicting 5.4% growth for the year compared to their previous estimate of 6%.
But even this estimate is dependent on conditions improving in the second quarter and, with travel bans to and from China in force in a dozen countries, Chinese factories closed and imports reduced as citizens stay at app德扑圈官方网址home and stop consuming, global GDP growth could be reduced by 0.25% for the year, significantly more than SARS.
The virus is also far from under control, with the World Health Organization reporting that the global death rate of the new coronavirus at 3.4% with thousands of deaths. Doctors said these figures are likely to be an underestimate because testing facilities and medical professionals at hospitals and laboratories in Wuhan and elsewhere in China are overworked and underfunded. If the current rate of chaos continues, the economic repercussions could be huge. With a potential recession on the way, people will feel the pinch across the U.S. and Europe. International companies working with China are already struggling to deal with the fallout.
Cash flow impact with business closures
Ollie Pearce, a 36-year-old marketing consultant from England, is helping organize an event this week for British entrepreneurs and business owners navigating the turmoil in Shanghai. He says all companies are facing HR headaches as employees argue over their rights during the enforced business closures, while others, particularly those in the education, service and entertainment industries, are unlikely to recover from the dent to their cashflow. Ollie is working remotely at his standard salary, with his usual schedule of events and media launches swapped out for the occasional online crisis management meeting with clients.
“People working for larger companies have much more negotiation power but a lot of small businesses I’ve spoken to are asking their employees to work voluntarily,” he says. “They just can’t afford [to pay double or have workers off entirely] and a lot of employees understand that and are willing to help to out.”
Zou Jiayuan has also been working from app德扑圈官方网址home in Beijing for her standard salary since the extension was announced. The 28-year-old product manager is happy she and her husband, a government worker, can earn money from app德扑圈官方网址home, as enforced unpaid leave would render them struggling to pay their 5-year-old daughter’s hefty tuition fees.
“I understand why the government made this move as reducing travel and people gathering together can help reduce its burden,” she says. “But I don’t know how long this epidemic will last. Too long, and it will have an impact on all businesses, which will naturally affect families as well.”
The hard truth is that nobody, not business leaders, analysts or the Chinese government, can predict how it will play out. While it’s tempting to compare the coronavirus to epidemics of the past, no two viruses or economic circumstances are the same.
“The rapid spread of the Wuhan virus has forced economists and market participants to confront a series of questions that are almost impossible to answer,” says Neil Shearing, chief economist at Capital Economics.
“The scale of the impact will ultimately be determined by how the virus spreads and evolves, which is almost impossible to predict, as well as how governments respond. If the epidemiologists are unsure how events will play out, then you should be skeptical of any economist that claims to know better.”
What is certain is that, in our hyper-connected global economy, the economic waves from the Asian superpower that is also the world’s factory, will make significant ripples in the U.S. too.
If you want to know whether the purchase of your next iPhone will be affected by the coronavirus in China, read on for our guide to how a recession may affect U.S. consumers.