[The Editors' Verdict] Rethinking Excessive Dependence on China

Published 11 Feb.2020 10:22(KST)

Professor Kim Kyung-su

The novel coronavirus infection (Wuhan pneumonia) is bringing Asia to a halt. According to the South China Morning Post (SCMP), as of the 10th, the number of infected people in China has exceeded 40,000. Despite significant medical advancements such as DNA sequencing analysis, which is key information related to diseases, the scale of the novel coronavirus outbreak has quickly surpassed that of Severe Acute Respiratory Syndrome (SARS), which spread over eight months.

The rapid increase in infections is attributed to the Chinese authorities' failure to take appropriate initial response measures, particularly due to insufficient knowledge about symptoms and transmission routes.

First, there is a possibility of transmission by people who are infected but show no or very mild symptoms. Unlike other viruses, Chinese authorities have suggested that transmission may occur even during the incubation period (estimated to be 14 days). As a result, the coronavirus fatality rate (2%) is lower than that of SARS (10%), but it spreads more easily among people. Moreover, no vaccine or treatment has yet been developed.

The Chinese government, responding by expanding diagnostic equipment and medical facilities and implementing strict movement restrictions on residents, expects the virus to subside soon based on recent outbreak statistics. However, experts remain cautious about making premature conclusions.

Currently, the Chinese government is blocking major cities in Hubei Province, including Wuhan, known as the origin of the novel coronavirus, while strictly limiting people's movement by restricting outings and banning gatherings in several cities. While this policy may be effective from a quarantine perspective, it also causes a double burden by restricting consumption and production activities.

Furthermore, Wuhan is the ninth most populous city in China and a transportation hub from which major cities can be reached within a few hours by high-speed train. Hubei Province, with Wuhan as its capital, was designated as a free trade zone in 2016 and is a central industrial area in central China with developed manufacturing industries such as automobiles, petrochemicals, electronics, machinery, steel, and textiles.

The novel coronavirus crisis has frozen not only the Chinese economy but also the supply chains that China is part of. Companies with production bases in China, such as Apple and Hyundai Motor Company, are facing difficulties.

Meanwhile, major stock markets, which plunged sharply at the beginning of the virus outbreak, have shown a clear recovery trend since February. This seems to reflect investors' expectations that the coronavirus will disappear as the weather warms. In contrast, international commodity prices such as crude oil remain stagnant, showing a mixed picture.

If investors' predictions are correct, the negative ripple effects of the novel coronavirus on the global economy are expected to be limited. During the 2003 SARS outbreak, the Chinese economy briefly slowed but still grew at 10%, higher than the 9.1% growth in 2002.

However, if normalization is delayed, there could be significant losses. This is because China's share in the global economy has greatly increased. The number of global airline passengers rose from 1.67 billion in 2003 to 4.23 billion in 2018, an increase of over 250%, during which three Chinese airports, including Beijing (ranked 2nd), were among the top 20 airports by passenger traffic. Moreover, China's economic size (the world's 2nd largest) has grown enormously compared to 2003 (when it was ranked 6th).

Large corporations have ended their extended Lunar New Year holidays and resumed production activities this week. On one hand, this is positive as the economy normalizes, but on the other hand, there is concern that the virus may spread again when the previously strictly restricted movement of people resumes. Recently, the Financial Times (FT) predicted that South Korea would suffer the most damage from the slowdown in the Chinese economy. It is time for Korean companies to reconsider their excessively high dependence on China.