WARSAW – What if the most terrible scenarios about the Wuhan coronavirus come true, and the disease outpaces the measures taken by the international community and China itself? The peak of the new epidemic in China may come in this month; with that in mind, let us think about the possible geopolitical and geoeconomic consequences.
The coronavirus outbreak coincided with an economic slowdown as China contends with rising debt, cooling domestic demand, and aggressive U.S. tariffs. The 6.1 percent GDP growth rate for 2019 was near the bottom of Beijing’s target range, and sharply down on last year’s 6.6 percent. On Jan. 15, China and the United States signed an interim trade deal, the first steps toward the end of U.S.-China trade war. But the celebration was short-lived, as days later the severity of the coronavirus began to become clear.
Wuhan, the capital of Hubei province, is at the center of the Chinese industrial heartland. Whereas the national economy of China saw a growth slowdown in 2019, Wuhan saw higher growth at 7.8 percent. Wuhan’s prospects looked bright for 2020 as well. As the Hubei government noted, “Over 300 of the world’s top 500 companies have settled in Wuhan. The number of newly-added high-tech companies hit a record high with a net increase of about 900.”
Beijing has demonstrated that it is able to mobilize millions of people for the goal of containing the virus and simultaneously isolate millions of others from their families and friends. Hubei province, with a population of 58 million of people, has essentially been cut off from the entire country. Compare Wuhan to California or, more precisely, to Silicon Valley and imagine the harm done to the national and global economy if the state was effectively shut down for weeks on end.
In a less dramatic scenario, when Beijing eventually soon triumphs over the virus, the harm to the Chinese and global economy might not be so great. For example, during the 2003 SARS outbreak, China’s retail sales growth bottomed out at 4.3 percent, but promptly rebounded and the third quarter growth clocked in at 9.7 percent. Similarly, passenger transport fell by 42 percent and 22 percent in May and June 2003, respectively, before bouncing back in September. But there is potential for the outbreak to seriously harm the Chinese economy and consequently the global economy.
According to Andrew Milligan, head of global strategy at Aberdeen Standard Investments, “Even on the assumption that the authorities do get on top of this outbreak, there will be some short-term economic shock.” But, he added, “That is a long way from saying the outlook for global markets will be materially different. It’s still early days.” However, the general vision of many financial experts is that short-term investors can be negatively impacted by the political and economic effects from the coronavirus.
The Economist Intelligence Unit estimates the novel coronavirus outbreak in China could reduce real GDP growth in 2020 by 0.5 to 1 percentage points. The first economic victims were air carriers and travel companies; the travel and tourism industries will be hit hard. However, some sectors like pharmaceuticals, e-commerce and automotive could benefit. The EIU’s projected growth rate for China was 5.9 percent, and if epidemic reaches the status of SARS, Chinese GDP could drop to 4.9 percent.
It should be noted that in 2003 the Chinese GDP was $1.6 billion versus $14.3 trillion in 2019. In 2003, the Chinese economy was the seventh-largest; now it is the world’s second-largest economy. The role of China in the global market is indispensable.
In addition to purely humanitarian motivations, Beijing is trying to head off the most dangerous consequences of the epidemic so that it does not deliver another crushing blow to the economy, as experienced in 2003. The numbers show how great the consequences could be. In 2019, during the Chinese New Year holiday, retailers and restaurateurs profit exceeded $148 billion, and tourism revenue exceeded $76 billion.
The consequences will run deeper than lost revenue, however. Since 2010, China has started to think about international prestige in terms of soft power, especially in the education and attraction of talented people from around the world. China worked hard to change its image and invited as many foreign students and talented specialists as possible. According to the Chinese Ministry of Education, in Hubei province alone there are 21,371 foreign students.
Now all of China’s success in attracting foreign talent in the last decade could be ruined by the spread of this virus. European and North American countries have initiated the process of evacuating their nationals from Wuhan, where a quarantine is in effect. If the coronavirus reaches a mass scale in other provinces, we are going to witness organized flights from China on an unprecedented scale, to Western countries particularly.
The coronavirus is spreading amid the U.S.-China trade war and a general slowdown of the Chinese economy. To tackle such a great challenge, China needs to mobilize the resources of the entire nation and its 1.4 billion people. And yet those resources must now be diverted to fight the epidemic, which could eventually force the Chinese economy into “hibernation” and even necessitate a temporary withdrawal from world politics. The geopolitical as well as economic consequences could be huge in the near future if Beijing determines that temporary seclusion is the best measure.
Cruel as it sounds, the U.S. is the biggest beneficiary of the crisis. The Chinese economic slowdown will continue and it is still unclear how large the impact will be from the crisis. The balance of power might temporarily shift back in the U.S.’ favor. Currently groups of sovereign countries are striving for independent foreign policies that often contradict the U.S. vision. In particular, Iran, China, Russia and now Turkey are sure that when they join in one “axis,” all members will be capable of resisting the Americans and the West in general. But if one country is pushed out, especially from the tripartite China-Russia-Iran axis, the global balance of power would tilt in favor of the West.
Voices claiming that the virus was artificially made to harm China are already being heard, and conspiracy theories will only increase. For example, Russian politician Vladimir Zhirinovsky claimed that the virus was “surely” created by the Americans to target China. Such theories aren’t new. A Chinese Air Force colonel accused the U.S. government of releasing the H7N9 bird flu virus into China as an act of biological warfare. The opposite version of this theory — that the coronavirus originated from a “covert biological weapons program” in China and the Wuhan Institute of Virology — has also been widespread on social media.
Such conspiratorial thinking might sound ridiculous, but if the virus harms mainly China, Beijing may not be willing to accept that it was a natural occurrence. If Russia has harbored for centuries a feeling of insecurity, we are now witnessing the birth of new great power with such feelings. If China overcomes this challenge, it will emerge stronger and more consolidated than before.
At the same time, the rest of the world is responding with a rising tide of xenophobia against Chinese, and other East Asians as well because many people around the world do not distinguish between the Asian nations. In the media there are numerous reports about the backlash and stigma against Chinese and the Chinese diaspora (Canadians, French, Americans, and so on).
In particular, French citizens of Asian descent have been complaining about abuses on public transportation. This has inspired the use of the hashtag “I’m not a virus.” It is obvious now that if the coronavirus is not stopped, we are going to witness more xenophobia toward Chinese people, which will in turn fan the flames of nationalism and resentment in China.
The slowdown of the world’s second- largest economy will not leave anyone untouched. Even if the coronavirus is successfully blocked in the rest of the world, the global economy is going cough and choke together with China.
Ridvan Bari Urcosta is an analyst with Geopolitical Futures. © 2020, The Diplomat; Distributed by Tribune Content Agency, LLC