Some reports have compared the situation to 2003, when the severe acute respiratory syndrome (SARS) that broke out in China spread to more than two dozen countries. However, as both China's conditions and the global landscape have evolved dramatically since then, the influence of COVID-19 on the economy will be different.

A different scenario

The SARS outbreak did not seriously affect the economic growth of the Asia-Pacific or the rest of the world. In 2003, with rapid expansion of economic globalization, new technologies and rapid growth in global trade, investment and financial sectors, the global GDP growth was 2.96 percent, higher than in 2002, according to the World Bank. From 2004 to 2007, the annual GDP growth rate in the Asia-Pacific remained above 5 percent. The upsurge continued until the financial crisis erupted in the U.S in 2008.

However, things are different now. The world economy, still mired in the aftermath of the financial crisis in 2008, is further weighed down by an anti-globalization tide and lack of growth drivers. China's role as a world economic growth engine is hampered by U.S. trade protectionism and its negative impacts such as a weak external demand.

On the other hand, China's economy is stronger than before. In 2003, China's GDP accounted for 4.27 percent of the world total, and 19.3 percent of that of East Asia and the Pacific. In 2018, these figures rose to 15.84 percent and 52.46 percent respectively. In 2003, two years after acceding to the World Trade Organization, China experienced rapid industrialization and urbanization, with its GDP growing at double-digit rates.

The economic shock of SARS was limited, both for China and the Asia-Pacific. But COVID-19 might bring about bigger concussions considering that China is now at a critical transition period, endeavoring to transform its economic growth model, upgrade the economic structure and change the growth drivers. It is also facing downward pressures.

Moreover, the depth and breadth of China's participation in the Asia-Pacific value chain and economic cooperation far exceed those during the SARS period. After years of efforts, it is more engaged in international division of labor and become more important on the regional and global production chain. Many regional free trade agreements under negotiation in 2003 have now been concluded and implemented. The economic interdependency between China and regional blocs such as the Association of Southeast Asian Nations (ASEAN) has reached the highest level in history.

Besides, the China-proposed Belt and Road Initiative and China's participation in the negotiations for the Regional Comprehensive Economic Partnership (RCEP) mean economies are more entwined now and any impact on one would impact others, amplifying the epidemic's fallouts.

Trade fallouts

The virus containment measures taken in China, such as extension of the Lunar New Year holiday and restriction of unnecessary traveling and gathering, have already taken a toll on the economy, in particular service industries such as transportation, tourism, catering and recreation. Many small and medium-sized enterprises are struggling as consumption is restricted. Investment in manufacturing, real estate and infrastructure has also been constrained.

The negative influence of the epidemic on the Chinese economy will also be transmitted to the Asia-Pacific region. Countries and manufacturing industries such as automobile and electronics that are relatively more dependent on China for supply have been impacted by the virus in the short term.

Take the automobile industry for example. The 11 Chinese provinces that announced a delay in work resumption, such as Hubei and Guangdong, produce two thirds of China's automobiles. The output loss in the first quarter will be over 1.7 million units if production cannot be resumed by mid-March.

Moreover, China is an important exporter of auto parts, and Japan imports over one third of its auto parts from China every year. Hubei, the epicenter of the outbreak, is a major auto part manufacturing base in China. Due to disruption in Chinese auto part production, other countries along the auto value chain, such as Japan, the Republic of Korea and the U.S., may also not be able to continue normal production due to lack of auto parts.

Service sectors in the region will take a hit due to the sharp dwindling of Chinese tourists. Tourism, transportation and catering in the Asia-Pacific region, especially in Japan and Thailand, will be among the hardest-hit. It was predicted that about 400,000 Chinese visitors would cancel their Japan trip before March. From February to June, the number of tourists to Japan is estimated to decrease by 30 percent year on year. The Economist Intelligence Unit of the Economist Group predicted that the virus might lead to a loss of $80 billion for the global tourism industry as the volume of Chinese outbound tourists will not bounce back to previous level until the second quarter of 2021.

China is an important destination of exports from other Asia-Pacific economies. With many stores shut down and people staying at home in China, the goods trade between China and other Asia-Pacific countries will be affected.

U.S. soybean exports to China fell to the lowest level in 10 months, the U.S. Department of Agriculture said on February 13, although according to the phase-one trade deal signed between the two countries, China will import more agricultural products from the U.S. Exports of good from Australia, New Zealand and ASEAN to China will also be impacted. According to a projection by the International Energy Agency, the global petroleum demand will increase by only 825,000 barrels per day in 2020, far less than the previous estimate of 1.2 million barrels daily.

Staying positive

While the short-term impact of COVID-19 on the Chinese and the overall Asia-Pacific economy may be more severe than during SARS, the time the virus is brought under control will be an important factor determining economic trends in this year. If the epidemic can be controlled in the first quarter, economic growth will resume or even bounce back sharply. In this scenario, China's long-term development will not be impacted and the Asia-Pacific economy will recover sooner.

But if the epidemic can't be contained in the short run, the service industry might take a year to pick up, which means more harm for both the Chinese and the Asia-Pacific economy.

The Asia-Pacific is taking countermeasures in response to the epidemic. For instance, China has introduced various policies encouraging businesses to resume production, and Southeast Asian countries including the Philippines, Thailand and Indonesia have introduced monetary easing policies.

As long as the spread of COVID-19 can be effectively contained, the overall economic growth trend will not be reversed. After the epidemic is over, the Chinese economy will resume steady growth, and the industrial supply chain in East Asia will return to normal. The growth of the major Asia-Pacific economies and the world economy is expected to resume after the middle of this year.

Jiang Yuechun is a research fellow with the China Institute of International Studies and Zhang Yuhuan is an assistant research fellow at the institute

Copyedited by Sudeshna Sarkar

Comments to yanwei@bjreview.com