[NEWS IN-DEPTH] Coronavirus Outbreak: Global Economic Impact

as authorities in China race to contain
the spread of a new corona virus that’s killed hundreds investors are bracing
for a global economic fallout that some analysts said could be more severe than
the SARS outbreak in 2003 SARS which first emerged in China’s Guangdong
province before spreading to other countries claimed around 800 lives
worldwide and shaved point five to one percentage point off China’s growth in
2003 according to various estimates now for one and the Chinese economy much
bigger today in 2020 than back in 2003 and as witnessed by South Korean
automaker Hyundai Motors announcement of a temporary shutdown production lies
during shortages of Chinese parts is testament that the global supply chain
is also heavily reliant on the world’s second largest economy as well the novel
coronavirus outbreak in its impact on the global economy topic of our news
in-depth tonight with Daniel you global strategist at you want to secure ities
and jung geun’s are professor of economics at the catholic university of
korea welcome gentlemen to the program happy to be here thank you very much now
I want to begin with the impact of car sales and parse procurement in China
from the corona virus outbreak dr. yang analysts expect the impact this time to
be bigger than during the SARS outbreak in 2003 because the world’s second
largest economy has become a much bigger manufacturing hub today for the motor
industry including electronic parts of course but motor really well it’s if you
look at Hyundai Motors actually 70% of their parts are actually actually
sourced domestically but they have a few parts from China that they cannot really
do without their for example wiring harness now cars you take thousand you
need thousands of parts to build a car and some of those parts are sourced from
China and those are what’s causing the problem even if you have 990 out of
those thousand parts that you can build an automobile with if you don’t have
those ten parts from China you cannot build the automobile so that seems to be
what’s up problem here some of the parts are
acting as bottlenecks to production now in case of wire wiring harnesses
apparently you can’t source them from India and Vietnam so I suspect that
Hyundai Motor’s right now is scrambling to get parts from those alternate
sources but it’s going to take time and I think that’s the problem that we’re
seeing right now right and you know that’s not limited to South Korean
automakers like Hyundai executives at several car makers and motor parts
suppliers all around the world warned that plants in Europe and the US were
only weeks away from being forced to close as disruptions caused by the
corona virus outbreaks in China rippled through the global manufacturing supply
chains so what are some of the ramifications that we can expect on the
wider global supply chain okay while there are alternate sources available
from say India or Vietnam they weren’t expecting this reduction of Chinese
production from the virus so they won’t have to step up production and that’s
going to take time and I think that’s what we’re going to that’s what we’re
seeing right now this problem may be solvable if we wait a month or two but I
think the lessons that we learn from not only the corona virus but also from the
us-china trade war and the for the Korean case the Japanese export
restriction is that we cannot be restricted to importing from only one
country when we look at economic theory theory of comparative advantage I think
it has a tendency to limit production to a few countries but I think we’re seeing
some problems with that in these last few years trillions from
the trade war from the virus and from the export restrictions so I think
companies are now going to be a lot more focused on how to diversify their
production I don’t think it’ll come back to Korea necessarily but I think they
will try to source these components from different countries right of course you
know the first economic response from the corona virus outbreak came from the
it’s returning from the Lunar New Year holiday investors sent shares in China
down by about 4 percent I mean 8 percent excuse me double that on Monday stock
markets around the world have plunged in the recent days as a sense takes hold
that a public health morph really crisis could morph into an economic shock
it looks like global shares have picked up since then
how are the financial markets faring in the wake of the corona virus outbreak
right would they a break if you look at the market capitalization it fell by
more than 270 billion over the one-week period so when the market opened for
China on Monday that was how much disappeared some people estimate that
economic impact would be of 160 billion US dollars so which was much bigger in
terms of market capitalization to decline most of the market fell around
5% plus Chinese market actually fell from the peak to bottom about 12% and
then he recovered Korean market also fell quite significantly as well so the
implication was initially very very heavy but in the last two days Chinese
market recovered quite nicely if you look at from the bottom to top it has
recovered by about 5% so we are seeing some indications that the response of
the market composition in my ease in in the future well you know it is sign of
deep and concerned however attorneys are leaders over the weekend announced or
outlined plans to inject fresh credit to the economy which includes a net 22
billion dollars to shore of money markets around the world
if and the loser of borrowing terms for Chinese companies did that
help at all would you say and do you expect China to make such interventions
again yes I think they would definitely do that if you look at the example of
SARS which is 2003 if you look at the money supply growth rate that we’ve seen
in China it rises from around 110 percent territory to as high as 21.6%
rise and also the if you look at US side money supply growth
to also go from 6% to 9% so huge amount of liquid injection happened that
resulted into a significant amount of liquidity driven market rally I think
that this time around it’ll be the same thing Chinese government announced that
on the day of the opening they will use 174 billion u.s. dollars of liquid
injection if you need it and also they lowered the repurchase rate by 0.1
percentage point so it seems that the Chinese government will do everything
possible to inject all the liquidity they have in order to stabilize the
market right you mentioned the South Korean market as well as in South Korea
reported its first case of the coronavirus about two weeks ago the
market lost about 90 billion dollars in market value compared to others some
markets you know that’s that’s high volatility now why is that the case well
that’s been the case for Korean equity market in last about a year and a half
already if you look at the market rise last year Korea was one of the most
underperforming market once again it is the same case for this year the reason
for that is because of the GDP growth rate itself if you look at Korea’s GDP
growth rate we’re looking only 2% territories where as the global economy
growth rate we’re looking at 3 percent so it’s much lower than that and also we
are looking at a very highly leveraged consumers so if you look at the
consumers that to a GDP ratio is a 93 percent it’s very very high so on top of
that if you have a tourist Chinese tourist not coming to Korea then
obviously the consumption will be less so many are concerned about that and
also Korea’s dependency on China in terms of production as well as import
export that is very large had to have increased it in the last 20 years quite
significant amount so therefore with this current virus obviously people are
concerned about the Korea’s economic growth rate now dr. yang moving beyond
the financial markets and China also has risen into an enormous consumer market
it’s a nation of 1.4 billion people with a growing appetite for electronic
gadgets you know growing a appetite for fashion apparel you know the trips to
Disney and if you will that nation is
practically at a standstill what is a spell off for number one China Chinese
economy okay well if you look at the stars as an example some studies
actually try to break down where the harm came from the risk premia in the
financial market manufacturing and services and the hard the year largest
hit actually came from services and it’ll probably be the same this time
around as well because well services actually forms the largest part of the
Chinese GDP and we’re seeing the same thing in Korea if they’re afraid of
these contamination contagious diseases people will not go to see movies
amusement parks shopping so those sectors that there will be the hardest
hit now having said that for Korea it’s not as exposed as much to the consumer
sector Korea’s export of consumption goods is less than 10 percent of Korea’s
exports to China and services we don’t really export a lot of services at all
and it’s it’s similar thing with cha exports to China we don’t really exploit
a lot of services so at least from that sector we don’t see we don’t seem to be
that much vulnerable where we will be vulnerable is the services and exports
that China does to other countries because while their manufacturing has
basically stopped well China’s economic growth reactor Yanni’s expects to slip
this year to 5.6 percent down from 6.1 percent last year now that’s according
to a conservative estimate by Oxford Economics based on the impact from the
virus so far that would in turn take the reduce the global economic growth for
the Year by 0.2 percent to an annual rate of 2.3 percent it’s the slowest
pace really since the global financial crisis in decade ago yeah well the rule
of thumb by several research institutes seems to me that if Chinese growth Falls
by one percent then Korean growth will fall by about 0.2 percent so right now
people are expecting the Korean GDP hit to be up
0.15% and well normally it well it said we could probably I could probably
survive this but right now because as mr. you mentioned Korea growth rate is
so low at two percent level that even a 0.15 percent hit well would seem like a
large hit so it does not look for good for Korea and then if you also look at
SARS as an example the actually countries like the United States and
Europe really weren’t that much affected the countries which were affected were
Korea and the countries in the South Asian countries and those are probably
the countries which obedia largest hit outside China at this time around as
well and that’s also a bit depressing for Korea because Korea was really
looking forward to exporting a lot to South Asian countries this year for
recovery and they’ll probably be hit with the Chinese slowdown along with
Korea right you know South Korea of course has vowed all-out measures to
minimize the economic impact from this coronavirus outbreak one of which
includes injecting the emergency funding of 2.8 billion dollars for immediately
to support industries that would be impacted by this a corona virus that was
announced today you know learning from the past instances of SARS MERS I mean
you name it is this enough I mean what kind of prescriptions would you like to
give to the South Korean government let me start with you Daniel well I think
that we really have to organize well and to change a lot of things that has
happened one thing for sure is in terms of the production our dependency on
China’s productions has increased significantly from nine to year 2000
2020 we need to reduce that obviously we need to spread it out too much broader
countries including Vietnam as well as probably the u.s. because if you look at
the consumption base global consumption about 40 percent is from us so obviously
we need to have much higher dependency on us China also is about 10% of global
consumption so of course we have to have dependencies but I think that the level
of dependency is as much as like 25% for Korea so that’s
too much so I think that we need to spread that out on top of that what we
need to do is that we need to focus much more on the fourth Industrial Revolution
related industries so we need to focus through a lot of measures such as
additional liquidity injections through the money supply as well as the fiscal
budget but just spending money is not going to cut it we need to organize it
we have to do a much better job than we have done in last five years
right I think it’s the same prescription for every time we hit an external factor
or difficulty you know the last time that Japan had expert controls and South
Korea I think the same prescription came a diversified portfolio and be prepared
for the fourth Industrial Revolution dr. yang with your prescription okay well
I’m worried about the service industries in Korea because again service
industries are actually largest component of Korea’s GDP and especially
lodging tourist tourism retail shopping those areas have been hit hard for the
last three or four years first with the sad retaliation and then last year with
the rise of minimum wage and the 52 are working raising to the labor costs
substantially and then now the coronavirus that’s reducing the demand
for services not by perhaps two Chinese tourists only but also Korean nationals
now given the scientific problem that we have here we don’t want this disease to
spread you can understand why the service industry should be shrunk at
this particular time but we need specific aid so that these companies
firms these small firms especially can get over the hump while the demand is
reduced and then as soon as it’s scientifically feasible get the people’s
confidence back up so that they’ll consume these services as quickly as
possible so that the any harm from the reduced demand for services will be
minimized absolutely well after Starr is trying to
suffer several months of economic contraction and that might happen this
time to the only a certainty is this whatever happens in China will be felt
much more why in all corners of the globus clearly
China has become a much more dominant player in the world economy well that is
our news in depth on the worldwide impact economic impact from the corona
virus outbreak this of course is in no way making any less of the pain and
suffering of those physically affected by the virus our thoughts and prayers
are with you thank you everyone for watching thank you Daniel you thank you
dr. yang for your obsessions and to you guys thank you for watching I’ll be back
tomorrow think I’m singling take it

Stephen Childs

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