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Coronavirus impact

30 January 2020

At time of writing, 29 January, Chinese authorities had confirmed nearly 6,000 cases of the novel 2019 coronavirus, 2019-nCoV, and 132 deaths.

The new coronavirus 2019-nCoV is probably more contagious than severe acute respiratory syndrome (SARS) and continues to spread rapidly, although key details of its nature are still unconfirmed by the WHO. The pathology, contagiousness, clinical spectrum, and incubation period of 2019-nCoV have still not been confirmed by the World Health Organization (WHO) or China's National Health Commission (NHC).

An article published on 24 January stated that the first suspected case occurred on 1 December - one month before the NHC issued statements about the virus - and was not associated with the live animal and food market in Wuhan (the capital of Hubei province) that was traced as the source by Chinese authorities. Academic researchers assess that 2019-nCoV is more contagious than the 2002-2003 SARS virus, with a reproduction rate of 2-3 (that is, an infected individual infects up to three others). There were approximately 3,000 officially diagnosed cases globally at the time of writing. However, researchers at Lancaster University estimated on 24 January that more than 190,000 people could become infected by 4 February.

At time of writing, the WHO still assesses that it lacks sufficient evidence to declare 2019-nCoV a Public Health Emergency of International Concern (PHEIC) - a declaration that would accelerate national-level efforts to create a vaccine and would likely trigger stricter travel restrictions. On 28 January, researchers at the University of Melbourne announced they had recreated 2019-nCoV. This should aid the development of early-diagnosis and, eventually, a vaccine.

Travel restrictions to, from, and within more Chinese cities is likely in the coming days. Cities with large numbers of suspected cases and those along the Yangtze River and with high-speed rail connections are at greatest risk. Within China, travel across provinces is being strongly discouraged by local governments. Flights from Wuhan and other parts of Hubei province have been suspended and are likely to remain so until the rate of new cases falls to near zero.

Most Asian countries have already blocked travel from Hubei province and are likely to extend this to other Chinese regions with high numbers of cases: Anhui, Chongqing municipality, Guangdong, Henan, Hunan, and Zhejiang have each reported more than 100 cases. The central government swiftly banned travel to, from, and within major cities in Hubei after categorising 2019-nCoV as a "level one" public health issue, alongside bubonic plague and cholera. This likely reflects official commitment to containing the virus rather than knowledge of its fatality rate. Additional cities are very likely to be isolated in the coming days. Areas along the Yangtze River, such as Chongqing municipality and neighbouring Sichuan province, are at greatest risk. Large cities in provinces with direct high-speed railway connections such as the Beijing-Guangzhou railway, which links Beijing municipality, Guangdong, Henan, Hubei, and Hunan provinces, are also at risk.

2019-nCoV may trigger force majeure clauses by Chinese counterparties in provinces that have experienced reduced business because of US-China trade disputes. Thirty provincial-level regions have enacted the level one designation to date, giving the State Council powers to implement response measures and information dissemination. This includes emergency measures such as extending public holidays, mandatory quarantines if individuals are suspected to be infected, and partial or complete closure of roads and public transport services.

The central government's power also extends to rules and regulations governing corporate behaviour. Companies are likely to face stronger oversight over actions that could adversely affect employment and the price of essential items. If 2019-nCoV spreads further, local governments may ask offices and production facilities to again postpone reopening, with public holidays for the Lunar New Year already having been extended to 2 February. Chinese companies may consider declaring force majeure to terminate or breach the terms of agreements with their commercial partners to minimise economic loss. This risk is particularly high for companies with agreements containing unclear force majeure provisions that Chinese partners could exploit. Counterparties based in localities with slow economic growth, or that have experienced strong adverse impacts from trade diversion during the past year due to US-China trade disputes, will be particularly prone to local political pressure to limit losses.

The estimated economic impact of SARS was an approximately 1% reduction of China's 2003 GDP. Using this as a benchmark for the potential maximum economic impact of 2019-nCoV, China's real GDP growth in 2020 could be reduced by 1.1 percentage points from IHS Markit's current baseline forecast of 5.8%. Like 2019-nCoV, SARS was a coronavirus and its outbreak coincided with the Lunar New Year holiday. The epidemic lasted roughly six months (January to June 2003, although the first case was suspected in November 2002). The worst affected Chinese regions were Guangdong province and Beijing. These together accounted for about 15% of mainland China's 2002 GDP. Hubei, which is the region that has been worst affected by 2019-nCoV so far, accounted for less than 5% China's 2019 GDP.

However, China's economy is more vulnerable today, with productivity and overall economic growth falling and the effects of the US-China trade conflict. Travel bans, heightened public health measures, and the current extension of the Lunar New Year holidays to 2 February - there was no extension during the SARS outbreak - will significantly impact household consumption, but will affect production less as factories are seasonally idle during this period. Income from international tourism has become less significant for China's economy since the SARS outbreak.

Mainland China's international tourism receipts in 2002 totaled USD20.4 billion, or 1.4% of GDP; in comparison, the international tourism receipt for 2018 totaled USD40.4 billion, just 0.3% of GDP. But the effect of mainland Chinese tourists travelling internationally is much more substantial. China's outbound tourism expenditure in 2002 totaled USD15.4 billion; by 2018, such expenditure had surged to USD277.3 billion (2019 data is only reported through the third quarter).

Mainland China's impact on the world economy is also much larger now than during the SARS outbreak, meaning the slowdown in Chinese growth may be a significant drag on global growth. Mainland China's economy was the sixth largest in the world in 2002, accounting for 4.2% of world GDP; it is now the second-largest economy in the world, accounting for 16.3%. Similarly, mainland China is now the second-largest importer in the world, accounting for 10.4% of the world's goods imports, compared with 4.0% of the world's imports in 2002.

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