The surge of the virus

Shyam Saran

Former Foreign Secretary and senior fellow, Centre for Policy Research

The outbreak and spread of the coronavirus from Wuhan in China to other parts of the country and abroad has caused widespread anxiety and economic disruption with more to come. The WHO has declared that it is now a Public Health Emergency of International Concern in the same category as earlier SARS and Ebola crises. This potential pandemic is different because it has erupted in a country which is now the second largest economy in the world. It is one of the most globalised of economies and a critical node in the dense network of trade and travel which binds our interconnected world together. This network is providing the transmission channels through which the virus is radiating outwards from its Chinese centre. There will be adverse economic impact not only for China, but also for countries far and wide which are linked to China through trade and travel.

The present outbreak is similar to the SARS epidemic of 2003 which also originated in China. There were 800 deaths but the loss to China’s economy was estimated then at $25 billion out of an estimated GDP of $1.4 trillion. China’s current GDP is $14 trillion, so the scale of loss may be much larger. During the January-March quarter, growth may slip from 6% to 4.5%. In 2003, China’s outbound tourism was 20 million. Currently, it is 150 million. The potential for exposure to the virus is much greater and the drastic decline in tourism that is already in evidence will mean heavy losses for travel companies in China and destination countries. Thailand receives 11 million Chinese tourists a year and Japan over 7 million. Prolonged disruption in this traffic will have a significant impact on these economies. The airline business involved in China traffic will suffer heavy losses. Air India and Indigo, which run limited flights to China, have already suspended services following the example of several international carriers. There are about 20,000 Indian students in China, with over 700 in Wuhan alone. Their welfare is a major concern. They are being evacuated in special flights.

While the immediate impact will be felt on tourism flows to and from China, there will be disruptions in the supply chains of global multinationals of which China is a critical component. Foxconn units in China, which make components for iPhones, have been shut down. There is bound to be a ripple effect on trade in products which rely on such supply chains. This unexpected disruption is coming at a time when the global economy is in a slowdown and global trade is flat. In case of SARS epidemic, it took about five months for the WHO to declare that the virus had been contained. It is too early to say how soon the current outbreak will be contained. The number of confirmed cases has crossed 17,000, while the death toll has gone past 360. These figures are increasing daily.

Equity markets, including our own, are reflecting negative sentiments spawned by the public health crisis, and it is likely that currency markets, particularly in Asia, will see a steady weakening.

The coronavirus outbreak will have a negative economic impact on India, even though its linkages with China are not as dense as some other countries. At a time when the Indian economy is locked into a prolonged slowdown, the inevitable shrinking of global GDP and trade in the wake of the crisis will only compound the problem.

While China has sustained accelerated growth for over four decades, it has also built up serious imbalances and vulnerabilities. It has a huge debt overhang of nearly 300% of its GDP and several key sectors of the economy have large surplus capacity. This includes the real estate and construction sector, steel and cement. A major economic disruption due to the health crisis could well be the trigger for a larger economic and financial crisis. This would then reverberate throughout the global economy, just as the financial and economic crisis in the US in 2008 became global in scale. This possibility cannot be ruled out. A faltering China may be as big a challenge as an ascendant one.

The coronavirus outbreak has brought into focus a much bigger challenge. It has been obvious for some years now that viruses which are hosted by wild animals may spread to those which are bred on industrial scale for human consumption. These include cattle, goats and sheep, pigs and poultry. Since the SARS epidemic, it became clear that some viruses could be transmitted from animals to human hosts. There is heavy use of antibiotics to prevent infections from spreading among the animals, but we have had epidemics like swine flu nevertheless.

In wholesale food markets in many South East and East Asian countries, beef, mutton, pork and seafood are often sold together with exotic wildlife, smuggled out of tropical forests and commanding high prices. But they carry unknown viruses which get transmitted to other domesticated and industrially bred animals also on sale in the market. The coronavirus outbreak has been traced to the wholesale meat and seafood market in Wuhan, which also sold exotic animals and bird life, including civet cats, turtles and bats. The coronavirus is reported to have been hosted by bats, which then infected both humans and animals who may have come in contact.

As long as this industrial-scale generation of animal protein continues and the contraband trade in wildlife continues to expand, there will be more potential pandemics. While the search for effective vaccines is laudable, this will not address the root of the problem.

In charting out its own future, India must learn from China’s experience. The search for food security should not spawn a health emergency.