BrazilIran-based consultant Amir NikKhah reviews the Chinese response to coronavirus
In a special guest article for Consultancy-me.com, Amir NikKhah, a business and international trade consultant at Tehran-based NikKhah Consulting, shares his views on the economic impact of the coronavirus crisis with a study on the response in China.
The coronavirus cannot be considered just as a health crisis in the social dimension; the spread of the disease has also affected the economy, trade and business. Many countries are going through their first experience in the face of such a global crisis. Even countries that have experienced a global recession in 2008 and 2009 have been unable to control the situation and cope with the crisis caused by covid-19.
The economic shock caused by the coronavirus is so extensive that I call it Economic Trauma. Trauma in medical science refers to the shock inflicted on the body by an out-of-body causative agent. The two main characteristics of this trauma are its sudden shock to the global economy, as well as its external and non-economic causative agents. Corona’s economic trauma is rapidly and severely damaging global and local markets and posing a serious challenge to businesses.
The approach required to counter economic trauma involves three key steps:
Recognising, controlling and stopping the external causative agent of economic trauma (crisis causative agent)
Investigating, controlling and improving the shock caused by economic trauma (current crisis)
Predicting the consequences of future economic trauma (future crisis) and planning the necessary strategies and actions to encounter them.
Recognition and control:
There are three main steps that can be taken to control the causative agent of current economic trauma, coronavirus.
Preventing outbreaks
Treatment of patients
Preparing the vaccine
Most policies and actions preventing the spread of the virus adopted by the governments of the countries involved in the crisis include quarantine, social distancing and travel and transportation restrictions and prohibition. Of course, some governments have also made stricter decisions, such as the Philippines, whose president has ordered police and his army to open fire on quarantine violators.
There is still no specific drug available for the treatment of patients with covid-19 due to the unknown nature of the disease in the world. In other words, the only major treatment for this disease is intensive care. Concerning vaccine production, it seems unlikely that the final product will be available to all countries by next year.
The Chinese government and corporations have taken a number of actions to curb the outbreak, not only in Hubei but across the country, some of which include:
Quarantining areas affected by the disease and imposing restrictions and prohibition on travel and transportation.
Monitoring the fever status of citizens in public places, especially by using artificial intelligence technology.
Imposing penalties for violators of preventive protocols.
Facilitating the process of obtaining government licenses for the production of pharmaceuticals and health products.
Rapid and mass production of detection and prevention equipment such as masks, fever meters and detection kits even with the launch of production lines in factories operating in other industries.
Free healthcare products from giant Chinese companies such as Alibaba, Huawei and Xiaomi.
Creating and utilising online platforms for education, consultation and diagnosis of covid-19 disease.
Using robotic technology and artificial intelligence in health centers.
Creating a green channel and allocating special transportation means for receiving medical shipments from all over the world with the cooperation of major Chinese companies active in international trade, distribution, automobile manufacturing and transportation.
Building specialised hospitals in just a few days.
Cooperation of IT giants and internet companies in China to provide a suitable environment for other companies and their employees to teleworking or remote working.
Closing schools and universities and holding online classes with the cooperation of internet companies.
Forced closures of many businesses.
Disinfecting and even destroying potentially infected cash and developing internet platforms for banking.
Currently (at the beginning of April) the number of new cases in China has dropped to zero and many restrictions and quarantine conditions have been revoked. Although many critics of the Chinese government have called the published figures a lie to restart activities, proper control of the spread of the disease is quite sensible in the country, and many other countries are even looking to emulate China’s methods of controlling covid-19.
Investigation and improvements
The initial shock of the coronavirus shook the Chinese economy at the beginning of the global outbreak. Many factories in the country have experienced a decline or inaction. Quarantine and travel restrictions have posed a profound challenge to the country’s tourism industry. In January and February, China’s economy suffered $196 billion in losses, according to an IMF official. Unemployment rates in China also rose to 6.2% in February. In the past 20 years, the unemployment rate in China has ranged between 4 and 5 percent. Statistics show that more than 5 million people lost their jobs in China in the first two months of the new year.
Comparing the statistics for the first two months of 2020 with the same period in 2019 shows that many economic indicators in China have declined:
24.5% decrease in fixed assets investment
20.5% decrease in retail sales
15.9% decrease in export value
13.5% decrease in industrial production (the fastest contraction in last 30 years)
13.0% decrease in service production
It can be said that since 1976, it is the first time that China has suffered from such a shrinking economy. Bankruptcy, unemployment and fear of the future have reduced consumer purchasing power and changed people's consumption behavior. Demand for Chinese goods abroad has also declined, as many countries have stopped or restricted their imports from China.
By quarantining the Hubei province as the source of the outbreak and establishing some medical infrastructure in the shortest possible time, the Chinese government has been able to significantly reduce the number of new cases. The Chinese government is well aware of the multidimensional effects of the disease on its economy and has allocated $16 billion to tackle the disease.
Some of the actions taken by the Chinese government and Chinese companies to quiet the shock of the corona economic trauma include:
Large Chinese companies have temporarily hired employees of companies and businesses that have been shut down, in order to control the shock of unemployment and of decline in the welfare of society. As mentioned, many of these companies set up health product lines in their factories and employed some of the unemployed people in those lines.
The government quickly began developing the necessary infrastructure and effective ways to empower the supply chain of basic commodities. In times of national crisis, concern over the lack of essential items in society is at its height. Especially when this crisis turns into a global crisis, the concern is heightened. This may lead to an increase in demand for the main products, and if distribution channels fail to properly bring and distribute these products in the domestic market, negative phenomena such as overcharging and hoarding will occur. The Chinese government and Chinese corporations have all shared their manufacturing and distribution infrastructures, and have pledged to strengthen warehouse inventories, not to raise prices, and to provide constant and purposeful distribution of essentials to the market.
The government announced that all costs related to medical tests and treatment are free for covid-19 patients. This will cover a large part of the costs of the families involved in the disease.
Many Chinese companies have decided to shift working hours. Thus, the production of these companies will not stop and this could prevent their possible bankruptcy and help the relative recovery in the current state of China’s shrinking economy. It should be noted that companies applying this policy have sufficient demand for their products in the marketplace under current conditions.
The Chinese government has decided to pay house rents to some families in some cities; also to pay office and workplace rents to some companies and businesses that have been temporarily closed due to the crisis. This is a suitable help to reduce the economic pressure on Chinese families and companies.
The Chinese, not completely but to some extent, were able to control the immediate shock of the crisis with their policies and prompt actions. Statistical sources announced a return to work rate of more than 70% at the end of March. Most factories that have resumed operations use an average of two-thirds of their capacity. This is due to a shortage of labor and demand.
Prediction and planning
There are various forecasts of the future economic conditions of China. China’s largest investment bank forecasts growth of 2.5% in 2020. The rate has averaged 6% over the past 30 years.
To prevent such consequences, the government has issued protocols and guidelines to restart production and commercial activities throughout the country. Of course, this decision has led to opposition both inside and outside China. Opponents say the outbreak is likely to continue in China. In other words, there is concern that the government, in response to the economic trauma, has forgotten its causative agent and is only thinking about recovering from the economic illness caused by this trauma. While this may again trigger another shock to the weakened body of the Chinese economy.
One of the most important pillars of China’s economy is its exports. With the global outbreak of covid-19 and the involvement of China’s trading partners with it, China’s exports will also face serious challenge. Overcoming this challenge depends on how other countries counter the crisis. At present, most forecasts are that 2020 will be a difficult year for the world economically and it seems that China’s exports will fall sharply regarding the slowdown in global economic growth and the shrinking economy of China’s trading partners.
The Central Bank of China injected about $174 billion of liquidity into financial markets in early February. Also in March, the central bank injected $14.3 billion in one-year mid-term loans into the country’s financial system and cut interest rates to 3.15 percent. The decision is based on the assumption that the Chinese crisis will be in the form of a V-shaped scenario, which means that after a period of time with a significant decline in economic activity in China we will see a rapid return of the country’s economic cycle to its growing path.
Increasing effective demand leads to increase in supply, and ultimately to the country’s economic growth. So regarding the global recession forecast, it seems that the Chinese government will focus on reviving the domestic market, as the largest consumer market in the world, for the coming months of 2020. In this way, the government and Chinese manufacturers will use incentive tools to revive consumer buying behavior and grow effective demand. They are well aware that they will encounter an economic super-crisis if they face a decline in domestic demand as well as a decline in global market demand.
It is also clear that the process of strengthening and reforming the supply chain in China is not just about preventing an immediate shock, but also about tackling future challenges. Chinese companies have realised that relying on one supplier or one market, whether internal or external, can cause irreparable damage. Many countries that have been suppliers to China and its companies are affected by covid-19 and are facing the crisis. Given these circumstances, the following are some of the main plans of the Chinese government as well as Chinese companies to reform the supply chain with a long-term perspective:
Evaluating current suppliers and anticipating their future activities.
Identifying new suppliers with more optimal conditions.
Agile and stable development of logistics and distribution infrastructures.
Continuous forecasting and monitoring of market demand.
Active and flexible planning.
Here are some positive and important points to consider after reviewing China’s policies, strategies and actions:
Large Chinese companies have cooperated extensively with the government in the face of this national challenge.
Online platforms and information technology have played a significant role in dealing with this crisis.
Robotics and artificial intelligence technologies have been among the main tools of China’s healthcare system in this crisis.
Speed and agility in the construction and production of medical facilities and equipment has been one of China’s strengths in preventing the spread of this crisis.
The compliance of the Chinese people that stems from East Asian culture has been instrumental in countering this crisis.
Finally, it should be noted that by at least the end of 2020, China appears to be shifting its attention from globalisation to focusing on the domestic market. As the global recession continues in the coming years, this focus will remain in China’s economic thinking. This will affect China’s international trade behavior and could deepen and prolong the global recession.
Therefore, other countries will focus on their domestic market as the global economic growth slows down. This matter along with other variables, some of which are somehow affected by the coronavirus crisis (but are not included in this discussion), will lead to a gradual decline in globalisation thinking and an increase in nationalist one.
