Health is wealth
DEMAND AND SUPPLY - Boo Chanco (The Philippine Star) - February 7, 2020 - 12:00am

This Wuhan coronavirus is showing the world that health is indeed wealth… and not just for individuals, but for economies around the world. So much wealth is now being lost and at risk in the aftermath of this coronavirus epidemic.

For one thing, the isolation of China to blunt the spread of the viral infection is showing how utterly dependent the world economy is on China. That’s probably why Chinese leaders didn’t seem too worried about Donald Trump’s trade war.

The New York Times reports that China is terribly important in the global supply chain of pharmaceuticals.

“Roughly 80 percent of active ingredients used by commercial sources to produce finished medicines come from China. Most ingredient production occurs several hundred miles east of Wuhan, but it’s not hard to imagine the virus and the quarantine spreading in that direction, bringing with them the possibility of shortages.”

The Washington Post reports that “the battle to contain the Chinese coronavirus threatens to cut off US companies from parts and materials they need to produce iPhones, automobiles and appliances, and drugs to treat medical conditions including Alzheimer’s disease, high blood pressure and malaria.

“Some of the United States’ best-known manufacturers such as General Electric, Caterpillar and the Big Three automakers, along with many smaller American businesses, depend on what is made in Chinese factories…

“Consumer electronics makers are among the most vulnerable, because many game consoles, smartphones and tablets are made in China. Apple announced that it had closed all of its corporate offices and retail stores in China — where it booked $44 billion in sales last year — until Feb. 9 because of the virus.”

Countries that are dependent on Chinese tourists face a brutal drop in tourism revenues. For example, Chinese tourists spent $979.4 million, or some P51 billion, in the Philippines for the first half of last year. They were the second-largest spender after South Koreans.

All that will be presumed lost if the health emergency goes beyond a few months. For now, the Chinese government has ordered suspension of all tour groups until the virus is contained.

It is no surprise that share prices of airlines have plunged. Many airlines have stopped flying to China altogether. Cathay Pacific has ordered 27,000 of its employees to go on unpaid leave.

China is the world’s biggest outbound international travel market. Hotels in Hong Kong, already crippled by months of protests last year now expect almost zero visitors because of the coronavirus ban on travel.

I saw a series of photos on Facebook showing Shanghai tourist areas with hardly any people. That’s not surprising given that the Shanghai government extended the new-year holiday by a week, telling companies to wait until Feb. 10th to restart.

Millions of migrant workers who went home for the Chinese New Year holiday, will wait for their government to tell them if it is already safe to return to their jobs in the big cities.

Technological alternatives to working in offices will probably be harnessed. Tencent, a tech giant, is reported to have allowed their employees to work from home.

But a company like Starbucks had no recourse but to temporarily close more than half of its 4,292 cafés in China. Disney closed its resorts in Shanghai and Hong Kong for the new-year holiday, one of its busiest weeks of the year. Jollibee closed 14 of its Yonghe King stores in China in response to the coronavirus.

Almost all of China’s 11,000 cinemas are closed. Only 3M is emerging as a bright spot with sales of masks going through the roof.

But the hit to businesses is beyond China. It had been pointed out that in 2003, China generated four percent of global GDP. Last year, it was 16 percent. 

The Washington Post reports:

“Factory closures will cascade through the global economy. Wuhan is a manufacturing hub, especially for autos. Nissan, Honda and General Motors have plants there. Bloomberg ranks Wuhan 13th out of 2,000 Chinese cities for its role in supply chains. One local company, Yangtze Optical Fibre and Cable, is the biggest maker of the wires that carry data around the planet.”

Washington Post also pointed out that “China is the largest export destination for 33 countries and the top source of imported goods for 65, including the United States, according to a 2019 McKinsey Global Institute study.”

Indeed, most of our semiconductor exports go to China. With the disruption in the supply chain, our export numbers will dive and produce a negative overall balance of trade.

Many were already working to reduce their reliance on China’s factories because of the Trump trade war. The virus, The Washington Post observed, is a powerful reminder that, politics aside, a diversified base of suppliers is a good insurance policy.

Not that decoupling from China is easy to do. Despite the tension with America last year, China’s share of global exports actually increased, The Washington Post reports.

 A Wall Street analyst was quoted by The Washington Post worrying about the consequences of the wait for the coronavirus to cease being a threat.

“The concern is not the zombie apocalypse with people dying in the streets. The concern is that a huge chunk of the global economy gets put out of commission as people wait it out.”

There are also those in the business community who remain hopeful. They expect a strong rebound when the coronavirus emergency subsides.

“People long cooped up will flock to shops and restaurants. Factories will rush to make up for lost time. To give the recovery a push, officials will increase infrastructure spending.”

In other words, it is a real mess out there and not just in China. Ours is truly a global economy and problems of one nation, which also happens to be the world’s second largest economy, is everyone’s problem.

Everyone feels so helpless because there is really nothing much that can be done except to wait this coronavirus out.

Boo Chanco’s e-mail address is bchanco@gmail.com. Follow him on Twitter @boochanco.

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