Nearly two decades after the outbreak of severe acute respiratory syndrome (SARS) in Asia, the coronavirus is now tragically wreaking havoc across China and spreading around the globe. While experts have compared the virus strains and their lethality to help us better understand how to address the ongoing pandemic, it is also useful to highlight the differences in the economic impact of these two outbreaks.
The Chinese and global economies are much different today than they were in the early 2000s. The People’s Republic of China (PRC) had recently been admitted to the World Trade Organization during the 2002-2003 SARS epidemic. Since then, the PRC has become an even greater driving force of the global economy. Today, China is the second largest economy in the world and constitutes more than 16 percent of global economic activity — triple the share it accounted for in 2003, according to the International Monetary Fund.
As a result, experts are already predicting the effects of the coronavirus will be much more dramatic than those experienced both during and after the SARS outbreak. The economic impact of SARS is debated, but, according to some estimates, China’s GDP decreased by 1 percent. Warwick McKibbin, a professor of economics at the Australian National University in Canberra, calculated that SARS cost the global economy $40 billion. McKibbin now says the coronavirus could cost the global economy three or four times that figure.
Another expert, Taimur Baig, the chief economist and managing director for group research at the Singaporean bank DBS, noted that when China’s GDP shrunk as a result of the SARS outbreak, “the whole world didn’t even notice.” But in an interview with CNBC, he said, “Now, China accounts for nearly a-fifth of global growth. China slowing by half a percent would be seismic.”
The world has also continued to become more economically integrated, meaning the economic consequences of this disease will not be contained to countries with the highest rates of infection. Consider, for example, the rise of outbound Chinese tourism. In recent years, Chinese tourists traveling abroad have generally spent over $200 billion per year. Lost profits in this space comprise capital that businesses cannot get back. Once the coronavirus is eradicated, the damage left in its wake will be much more severe than was the case with SARS.
The Chinese Communist Party (CCP) has long pointed to China’s rapid economic rise and strength as validation of its rule. But the greater the economic toll that the coronavirus — and other factors, such as the ongoing trade war and a decline in GDP — has on China’s economy, the less likely it is that this propagandist argument will hold sway. Losses in income will rise, and consumerism — which, coupled with China’s expanding middle class, is a cornerstone of the domestic economy — will drop. As of Monday, at least two dozen provinces, municipalities, and other regions directed businesses not to return to work before February 10. These shut-down areas made up more than 80 percent of China’s GDP and 90 percent of exports in 2019.
The effects of the virus on the Chinese economy and China more broadly will impact the leadership of the Communist Party. In a recent meeting, the Communist Party’s Politburo Standing Committee emphasized that the rampant spread of the coronavirus is a significant test of its governing system and capabilities (read: communist totalitarian regime). However, the longer this pandemic continues, the longer a key question looms: how long will Chinese President Xi Jinping, who “has been personally directing and personally planning” everything related to the outbreak, remain in power? Or, as Bill Bishop, an analyst who authors the Sinocism newsletter, wrote in a nod to Benjamin Franklin, perhaps Xi, the Party leadership, and military officials recognize “they either all hang together in this crisis or they may all hang separately.”
In that sense, innocent lives and global economic prosperity are not all that is at stake — for the CCP, Xi and its leadership’s power could be as well.
Claire Christensen has worked with me at Gingrich360 for the last three years helping with research on China, national security, and international affairs issues. She is the co-author of my book Trump vs. China: Facing America’s Greatest Threat. – Newt
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