China's Coronavirus Fallout: Hong Kong and Singapore take big hits.

• Author: Wu, Friedrich

Adecade ago, economists used to quip that "when America sneezes, the world catches a cold." Now that cliche seems more applicable to China, as the country currently accounts for 18 percent of global economic output (purchasing power parity basis), 28 percent of world manufacturing production, 13 percent of global exports, and 11 percent of world imports. It is also the globe's second-largest recipient country of foreign direct investment inflows, and its third-biggest FDI exporter. China is not only the largest trading partner of over 125 countries, but it also holds a central place in the networks of global supply chains. As the planet's most voracious consumer of commodities, fluctuations in Chinese demand have an out-sized influence on world commodity prices. Last but not least, Chinese outbound tourists, at 150 million yearly, are the world's biggest traveling tribe who collectively spend US$279 billion annually. In short, China has been the most powerful growth engine for the world economy in a decade. Hence, for better or for worse, whatever happens to the Chinese economy will have significant and inescapable rippling effects on the rest of the world.

As the COVID-19 virus continues to spread unabated, not only the industrial city of Wuhan and Hubei province are in physical lockdown, but the rest of the country is also caught in a self-imposed economic lock-down over fears of contagion and the still-rising infection and death rates. Factories are idle because millions of migrant workers are stranded by travel restrictions. Almost the entire economy is grinding to a near halt. Bloomberg estimates that provinces accounting for nearly 69 percent of China's GDP are closed for business. It is impossible to predict when factories (and the logistics companies that transport their goods) can resume full operations, as it all depends on how the virus situation evolves. Should the outbreak be successfully contained by end of the first quarter, national GDP growth for that quarter would probably fall to 0.0-1.0 percent. However, with a recovery and then stabilization in the second half, full year GDP growth would likely decelerate to 2.5-3.0 percent, which is not an unmitigated catastrophe. But should Beijing's mandarins fail to bring the epidemic under control, the world might just get to suffer the first "Made in China" global recession, with the attendant loss of confidence in the competence of the Chinese government.

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