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Word from China – Coronavirus update


Whether you’re calling it coronavirus or COVID-19, as the World Health Organisation has renamed it, it is important to keep a finger on the pulse of what is happening with the spread of the virus. Businesses as well as governments need to know the latest in order to plan for the future. As I am self-quarantining after extensive travels through South East Asia, I have spent the past two days talking to friends in China to get firsthand reports on the current situation and their sense of where things are going. A number of my contacts are Australians who have chosen to stay on in cities like Beijing, Shanghai and Guangzhou.


The following is largely anecdotal, but, hey, when a journalist talks to people we call it reporting.


Poor management allowed spread of the disease


A general sense has been that the Central Government “screwed up” the handling of epidemic initially. Leaving aside that early reports of a new deadly disease by whistle-blowers were suppressed, the failure to properly lock down Wuhan on the eve of the Lunar New Year was a major mistake. As I said in a previous blog post, giving three days warning of the lock down enabled people to flee the city, potentially carrying the virus with them. The general sense from my contacts in China is that is exactly what happened; people fleeing Wuhan were the direct cause of the exponential rise in the number of cases of the disease throughout China and to other countries during the past few weeks.





On the upside


It is important to note that, to date, the vast majority of cases (44,653 of 45,170 worldwide are in China, with only two of 1,115 deaths occurring outside China). Many noted the low death rate of less than two percent as a positive and said that it was looking like this is no worse than a bad flu. Those who were in China during the SARS epidemic of 2002-03 noted that SARS had a much higher mortality rate of 10 percent.


More significantly there is a sense that the Central Government, supported by provincial and municipal governments in affected areas, is now handling the situation more effectively. The lock down of nearly 80 million people in various forms across China has seen a slowing of the spread of the virus in recent days. The daily cases growth factor has fallen below one in the past two days, which is a sign of a decline of the disease according to the Worldometers coronavirus website.


Many of the people I spoke with said they expected to see a decline in new cases by April, with all restrictions of the Chinese Government likely to be lifted by mid-year.


Interested readers in comparisons of the coronavirus to the flu should read this piece in MDMag. It also makes a good point on the current rise in anti-Chinese xenophobia in the West, namely that Chinese visiting the US are at greater risk of dying from the flu than an American is of contracting coronavirus from a casual interaction with Chinese tourists. People really need to get a grip, including I am sad to say, here in Australia where I have heard people have started avoiding Chinese restaurants and areas with large ethnic Chinese populations in our major cities. Really? But then, fear is an irrational human emotion, as pointed out in this New York Times article.


But we’re not out of the woods yet


While the mortality rate for the novel coronavirus is lower than the death rate for the flu, epidemiologists remain concerned about possible mutations of the virus that could make it both more contagious and deadlier. Add to that that an effective vaccine for the most likely mutations (vaccine development is a probability game) could still be 12 to 18 months away and you get a sense of what we might be in for. Let there be no mistake, there is a very real race against time to contain the spread of this virus and to find a vaccine for its possible evolution(s).


But more severe so far than the direct impact of the coronavirus has been its economic impact. China’s economic growth, which was expected to fall to 5.5 percent this year, now looks like coming in at around 4 percent as a direct result of the virus. Although the Central Government has started lifting its lockdown, signs are that people are only slowly returning to work. Indeed, numerous companies have told staff they won’t be reopening for business until later this week or even next week, according to this report from CNN. Indeed, the coronavirus saw the global coffee price fall 30 percent on news that Starbucks and Chinese coffee brand Luckin were closing outlets in China until further notice.


With China accounting for 17 percent of world economic growth, financial analysts are forecasting that the coronavirus could shave between 0.2 and 0.3 percent from the world economy this year. The World Bank is saying if it worsens to a more severe pandemic it could impact up to five percent of world GDP. Importantly, billionaire investor Ray Dalio believes the economic impact of the coronavirus has been exaggerated. He expects a global economic rebound. I guess he's shorting the market. For more on these economic forecasts see this Forbes article.


Australian impact


The situation for Australia is likely to be much worse given the high level of integration of our economy with China. An FTreport suggests Australia’s three decades economic growth run because of China could be at an end. Apart from Australia's heavy reliance on China as its largest export market, the report points to Australia’s response to the risk posed by the virus as potentially causing the country long-term reputational damage. Quite simply, restricting Chinese tourists and halting the return of Chinese students as universities and schools commence the academic year could result in these Chinese groups electing to visit and stury in other markets after the crisis subsides.


Of course, it could also play to our advantage. As one of my contacts put it to me, expect Chinese interest in travelling to, studying in, and investing in businesses and property in Australia to rise after the crisis has passed. As he put it, the poor initial handling of the crisis by the Chinese authorities has “left a bitter taste in the mouths of many Chinese.” Trust with their own government has been broken and those who can, will leave. He noted that not all Chinese necessarily see Australia’s actions as excessive. Rather they think the Morrison Government's response has been responsible in the circumstances, placing Australian citizens first. According to him, that is the type of country Chinese would like to live in. He's looking forward to cashing in on that market rebound. I certainly hope he’s right, having recently hung up my own shingle.


The irrational vote too


In the meantime, Australia’s actions do seem excessive for a disease that is no worse than the flu. But then, as I noted above, fear is an irrational human emotion. I’m sure the Morrison Government won’t lose any votes over its response to this issue and may even pick up some at the next election, including in areas of significant ethnic-Chinese populations. Indeed, it isn’t just white Australians who are shunning Chinese restaurants and areas at present – China Town and Chatswood in Sydney, from what I am hearing, are currently like ghost towns. As I’m still in my irrational self-imposed confinement I haven’t been out on reconnaissance to confirm these reports. I’ll take my motorcycle out for a ride and report back on this in my next blog piece. Rest assured, I promise I won’t come into contact with anyone and will keep any likely bugs inside my full-face helmet, in the interests of both risk mitigation and respect for irrational human behaviour.

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 © Copyright Alistair Nicholas Consulting, 2020.  

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