Routes to virus risk - The Centre for Independent Studies
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Routes to virus risk

It’s unprecedented for a public health crisis to disrupt the global economy, but China’s coronavirus epidemic is doing just that.

With the lunar new year holidays now over, China’s economy should be humming, but many factories remain shut, container ships are going unloaded, and international air travel has come to a virtual standstill. That means trouble for every country that trades with China, including Australia, as outlined in our latest paper Australia’s Export Exposure to China’s Coronavirus Epidemic.

There are three main routes through which the coronavirus epidemic has the potential to disrupt the economies of China’s trading partners, even if the public health crisis itself remains confined to China.

First, everyone who exports to China will be affected by the general slowdown of the Chinese economy due to coronavirus. In Australia, commodities exports like iron ore, coal, gold, natural gas, meats, wheat, and milk products are all likely to suffer from reduced Chinese demand. But although individual exporters may face serious losses, the minerals and agriculture industries as a whole are well-placed to ride out a temporary crisis. After all, 1.4 billion people in China still need heat and food, even during an epidemic.

Second, many countries are exposed to the disruption of China-centred production networks. Although a few Australian companies do export parts to China for assembly into final products, countries like Japan, South Korea, and the United States will be proportionately much more affected by production delays. Australia may be highly dependent on China as an export market, but it is not deeply integrated into the Chinese economy.

Third, some countries will be especially hard hit by restrictions on travel to and from China. This is where Australia will feel the most pain. Australia’s services exports to China in areas like education and tourism are much smaller than its commodities exports, but they are likely to suffer much higher percentage losses. Chinese student numbers at Australian educational institutions are likely to fall by two-third in the first half of 2020, while Chinese tourism has ceased altogether.

Assuming that the epidemic is over by the end of April, Australia’s coronavirus-related losses in export revenues are likely to range between $8 billion and $12 billion, with roughly half of that amount concentrated in education and tourism. The big miners may lose big dollars, but they have even bigger reserves. Australia’s universities and tourism operators are much less well-prepared, and much more likely to come under stress from the coronavirus epidemic.