The international system is a sphere of anarchy where self-help, security dilemma and conflict are the order of the day. However, with the complex interdependence as a result of globalization, crises, events or the outbreak of a deadly virus in one part of the world can severely affect the other parts in no time. With the growing interdependence and free movement of people across the borders, the chances of getting embroiled in a crisis always loom large.
The recent outbreak of the deadly coronavirus in the capital city Wuhan of China’s Hubei province is a perfect example of how it is going to threaten geopolitics and the global economy. The virus is taking a terrible toll on human lives, killing more than 1,000 people in China and with thousands testing positive for the virus so far. The virus has infected people in dozens of countries till now and many countries have issued travel advisories to its citizens planning to visit China. Countries like Australia, the United States, and Singapore have blocked the entry of non-citizens traveling from China. Many countries worldwide have also imposed strict measures for reducing the risk of the virus outbreak. The Chinese government has instituted widespread lockdown of schools, colleges, businesses and industries and several metropolitan cities including Beijing and Shanghai, with at least 25 provinces being ordered to keep their company workers at home.
The virus is spreading rapidly and it coincides with China witnessing a slowdown in its growth. This also comes amidst the U.S.-China trade war and mobilizing resources for the entire nation, which further pause a big challenge to tackling the virus on its own. For China, the mobilization of resources and human capital is necessary to avoid temporary withdrawal and hibernation from global politics. The economic slowdown of China will continue for a while due to the current health crisis. The United States can be said to be the beneficiary of this situation as the balance of power in international politics was drifting away from it and shifting towards China in the last decade. The power politics in the 21st century has opened avenues for players like China, Russia, and Iran, among others, to challenge the balance of power in international politics. With China embroiled in battling the outbreak, it will be a severe blow to the new-found bonhomie of Russia-China-Iran tripartite axis. If China temporarily goes into hibernation, the balance of power will again shift towards the West led by the United States.
For China too, the crisis could turn out to be a blessing in disguise as it might stop massive demonstrations plaguing Hong Kong since last year. The protests might get disrupted as massive gatherings can become the target of the coronavirus. But even in the midst of the reports of more people getting affected by the virus, protests are ongoing in Hong Kong. However, the Hong Kong government has closed most of the rail links but refused to close the borders with China.
The crisis hit China—the world’s second-largest economy—will not leave other countries untouched. Even if the outbreak is stopped successfully in the rest of the world, its impact on the global economy will be huge. Wuhan, considered as the Silicon Valley of China, is a Chinese industrial heartland located in the middle of the country bounded by Beijing, Tianjin, Macau, Shanghai, Hong Kong, and Chengdu. The capital city is a hub of several crucial economic zones with more than 300 of the world’s top 500 companies settled here.
Chinese tourists spend more than $220 billion worldwide every year and this outbreak can significantly curtail this travel market. The effect can be seen in economies such as Cambodia, Thailand and Hong Kong which attract millions of Chinese tourists. The crisis is also likely to hit other Asian countries like Vietnam, Taiwan, Malaysia, and South Korea which are exposed to the Chinese supply chain linkages. This will also have a major impact on the Asian currencies, bonds and stocks as investors will rush for safe havens. Since the outbreak of this virus, global equity prices have dropped to 3 percent. Even the Indian Stock is down 3 percent and the Japanese and Korean stocks have started falling. Given China’s prominent place in the global supply chains the global economic fallout is not very far.
The ANZ Research has estimated that the Chinese GDP growth could be down 0.9 percentage points by this crisis, resulting in a headline growth of 5 percent. According to the report, industrial production and exports will decline. The report also says that recession-hit Hong Kong could lose up to 1.4 percentage points of its GDP growth from reduced Chinese tourism and trade, followed by Vietnam, Thailand, and Taiwan. Australia, since hit by the bushfire crisis, could lose approximately 0.2 percentage points of its GDP—part of the revenue from overseas tourism—as a result of the coronavirus outbreak. China, with its economy accounting for about 17 percent of the global GDP, is the largest trading partner of most of its neighbours in the region. The countries that are most dependent on Chinese imports or exports stand to be hit the hardest.
On the supply side, Airbus has stopped its production line in Tianjin as travel restrictions were imposed by China. The closure of the plant, which builds approximately six A320 aircraft per month, will affect the manufacturer’s output. Other manufacturers like Toyota, General Motors and Volkswagen have also ceased their production. This impact on manufacturing output is not only confined to China but will engulf most of the countries dependent on Chinese imports. The South Korean carmaker Hyundai has also halted its production lines because of the disruption on the supply side.
GSK—one of Britain’s largest drug manufacturers—said its medicine packaging facility in Tianjin, employing more than 100 people, remained closed due to the coronavirus crisis. The same company employs more than 3,000 individuals across China.
Finally, speaking of the conspiracy theory, many rumours have been floating around alleging that coronavirus was artificially made by the Americans to target China. China has been growing its influence and position in the international system exponentially through its Belt and Road initiative and the United States sees it is high time to harm Chinese interests. Another theory alleges that coronavirus is part of the Chinese covert biological weapon programme as the Institute of Virology is based in Wuhan. These might sound ridiculous but have the potential to wreak havoc in the international system thereby affecting the geopolitics and global economy.
This article was published in the International Policy Digest on February 24, 2020 click here to read
Views expressed by the author are personal and need not reflect or represent the views of Centre for Public Policy Research.