How have different economies around the world responded to the COVID-19 pandemic? What are the effects on local and global markets, and how will manufacturing, supply chains and trade fare?
Arts & Science spoke to Jun Zhang, an associate professor in the Department of Geography & Planning in the Faculty of Arts & Science about how China’s economy affects the world.
An economic geographer, Zhang specializes in regional economic development, with some of his research focusing on China’s Wuhan region — the initial site of the COVID-19 outbreak and one of the world’s most crucial manufacturing hubs.
In late February, you predicted that the overall global economic impact of COVID-19 could be 10 times worse than that of the 2003 SARS outbreak. Has this proven to be the case?
It’s actually turned out to be even worse. The SARS virus infected around 8500 people worldwide and caused around 800 deaths. The global economic loss due to SARS was estimated at $40 billion. On March 26, 2020, the Economist Intelligence Unit estimated that COVID-19 will wipe out 4.5 per cent, or around $4 trillion, of global GDP in 2020 alone.
In late January, Yi Guan, a Hong Kong virologist and SARS expert told a Chinese financial journalist that even by a conservative estimate, the scale of the COVID-19 epidemic would be ten times that of SARS. At the time, Yi Guan’s estimate was considered to be an unfounded exaggeration, but soon it had proven to be prescient and even a grave underestimate.
By April 20, COVID-19 has spread to 210 countries and territories, infected over 2.4 million people and cost over 166,000 lives worldwide.
What is an economic geographer’s role in a global pandemic like this one?
Economic geography is a sub-field of human geography. Starting with a focus on locations of production, it interprets the world of uneven economic development at all geographic scales — local, regional, national and global. It also embraces the many other human forces — social, cultural, political and institutional — which shape, and are shaped by, economic activities.
COVID-19 has sent the world into the worst economic downturn since the Great Depression of the 1930s. It represents the most severe disruption of the global production system in the recent round of globalization since the late 1970s. It is generating an unprecedented reversal of globalization that will have very profound impacts. And the epidemic has been above all a spatially uneven process. More vulnerable cities, regions, populations and communities are suffering more and will have a harder time bouncing back.
Economic geography, equipped with mapping tools and spatial analysis expertise, can help us understand the spatially uneven spread of the pandemic, the diversity of coping strategies in different locations and the pandemic’s uneven effects on people around the world.
China — the site of the initial outbreak — has started to lift restrictions and slowly re-start some operations. What can the rest of the world learn from China’s attempts to re-start their economic flow?
Due to lack of transparency and democratic accountability, the Chinese regime’s mishandling of the virus in its early stages allowed the virus to gain a tenacious hold and turn into a worldwide pandemic. However, the Chinese government enacted a massive mobilization of resources and took dramatic quarantine measures once the threat became clear, and the number of newly reported cases has slowed to a trickle.
Since early March, the Chinese economy has been reopening step by step, with fences separating workers, screening measures in place and the aid of smartphone-based tracing technologies. Most Chinese factories are now back to operating at around 80 per cent of capacity.
But China’s economic reopening has had to face very slow recovery of demand, the disruption of supply chains and massive cancellation of export orders when the pandemic became global.
This further proves that in such a global crisis, no country, no matter how powerful, can survive and thrive alone. The global recovery is very likely to be a protracted, grinding battle, full of challenges and uncertainties.
What do you think will be the implications of the pandemic on China’s crucial role in the global economy?
China’s once-overwhelming cost advantage isn’t what it used to be, while China’s tension with the U.S. and other major trading partners escalates during the pandemic. The pandemic has made it more imperative for companies around the world to diversify their suppliers and reduce their dependence on China even if doing so raises costs and reduces efficiency. For example, Japan has earmarked $2.2 billion of its record economic stimulus package to help its manufacturers shift production out of China.
Meanwhile, China’s debt-fuelled, investment-driven model of growth is running out of steam: productivity is declining while financial risks are increasing, at least partly due to the hardening of the authoritarian regime there.
So, China’s financial sector seems to be increasingly trapped in a dilemma: reducing risk by decreasing debt or increasing risk through more debt to bolster the economy.
The pandemic is basically forcing the Chinese government to do less of the former, and more of the latter — which would certainly add further stress to the already fragile financial system. Lurking economic and political uncertainty in China is a serious threat not only to the country but also to the world.