Managerial Economics: Understanding the Market and Industry Changes

Introduction 

The outbreak of the coronavirus has seen more than 76,000 people from over 27 countries infected and over 2200 people dead thus far. The concerns of the disease have been mainly about the health of the people since there is no known permanent cure yet. However, with the establishment that the disease is airborne, numerous industrial estates in China have been closed temporarily in order to contain the spread. The closing down of these companies has led to economic stutter, and so far, the global economy, which is fed by China, the second-largest economy in the world, is feeling the pinch of the disease on its economic health too. Richard Partington of The Guardian reports that the economic impact of the virus on the world's economy continues to deepen, and it is affecting many companies that depend on China for the supply of supplementary or secondary goods, manufacturing goods, and other trading relationships with Chinese manufacturers and suppliers. The coronavirus impact on the Chinese and the world economy is a clear example of how upsetting the production and supply chains of significant economies have a cascading effect on the larger economy 

Article- Richard Partington: Economic Impact of Coronavirus Outbreak Deepens 

The article dated February 23, 2020, argues that the quarantine efforts employed by the Chinese and other countries on Chinese people against the coronavirus have had devastating effects on many major companies in the world. These companies include the airline services, supply of luxury goods to a variety of companies, the automotive spare parts industry, the phone manufacturing industries like the American Apple Inc., which relies on Chinese manufactured parts and assembly. According to the article, Chinese President Xi Jinping has taken notice of these economic consequences and has also forecasted a big negative impact on the Chinese market and the world economy. However, Jinping is optimistic that the impact will be ‘short term and controllable.’ The article cites the efforts by international bodies like the International Monetary Fund (IMF), which has realized the catastrophic nature of the disease on the world’s economy and has expressed solidarity with the Chinese government, offering monetary support to contain the disease in China and giving grants and debt relief to poorer countries who have been hit by the unprecedented cessation of trade by China (Partington, 2020). 

The article summarizes by quoting the head of the IMF, Kristalina Georgieva, who has stated that it is important for all global economies to cooperate to contain the ominous virus first before its economic impact can be salvaged. Georgieva also noted the fast spread of the disease and warned that precautionary measures must be employed if the world seeks to save itself from the devastation of the disease on, not only health and economic systems but other areas of social health too. Countries like Italy, Partington notes, are already affected by the contraction of economic growth, and the effect of the disease on the Eurozone economy means that these countries may enter an economic crisis if the disease persists. The International Air Transport Association (IATA) has noted that the prevalence of the disease is already causing massive loss to its operations, topping to over $29 billion loss in the first two months of 2020. Supply chains for companies such as Jaguar, which rely on the supply of spare parts from the Chinese and the UK, have been disrupted, leading to concerns that if the Jaguar Land Rover brand runs out of spare parts, it may mean chaos to the automotive company (Partington, 2020). 

Rosemond Hutt: The Economic Effects of the COVID-19 Coronavirus around the world 

The economic impact of coronavirus has not been discussed by Partington only, but other notable journalists like Rosamond Hutt of the World Economic Forum , have noted that the COVID-19 virus is dragging the world to economic oblivion. Hutt, in the article dated February 17, 2020, highlights that the Chinese economic prospects must slow down as predicted by a poll conducted by the internationally renowned journalist association, Reuters. Reuters polls conducted in February of 2020 asserts that the Chinese economic growth would slump from 6% last year to 4.5% this year. However, Reuters notes that the great potential of the second-largest economy would lead to its quick recovery if the virus is contained within the first quarter of the year (Hutt, 2020). 

Hutt notes the effects of the virus on various sectors like the oil industry and the automotive manufacturers, as noted by the International Energy Agency (IEA) and Nissan, respectively. China, being the largest importer of oils, has reduced its demand for oil due to a massive reduction in demand for oil by its quarantined population. The country now needs about 430,000 fewer oil barrels, which is a significant reduction bound to have an impact on the IEA. Hutt also notes that the closure of car and mobile manufacturing companies like Nissan and Apple means that these industries will be hit economically. Hutt also expands her analysis to the sporting industry, pharmaceutical manufacturing companies, and the tourism industry. Hutt states that the postponement and foreseeable halt of Chinese sporting events may lead to massive losses, reduction of tourists from countries like Thailand could lead to losses of over $1 billion to the Thailand economy and the Chinese aviation industry could suffer similar consequences. The UN's International Civil Aviation Organization (ICAO) has also reported between $4 and $5 billion loss in their operations in the first two months COVID-19 virus hiatus (Hutt, 2020). 

Elliot Smith: Coronavirus Could Impact 5 million Companies Worldwide, New Research Shows 

Another economics analyst of CNBC , Eliot Smith, explains the reach that the virus could have on the worldwide economy. According to Smith, all Chinese provinces hurt by the virus are important to the global business network. The analysis by Dun & Bradstreet, a global data analytics firms, determined that Wuhan, as a significant manufacturing hub in China, and its proximity to Hong Kong, means that disruption of activity in these hubs could hurt the world's economy. Smith states that 49% of companies that are affected are headquartered in Hong Kong, with over 51,000 companies having a link to the affected regions (Smith, 2020). 

Smith also notes that the internal Chinese economy has been greatly affected so far, with over 90% of businesses in the affected regions also affected. These businesses, which are well established and with subsidiaries in foreign markets, are suffering helplessly. Smith also echoes the slump in the growth, with the G-20 economies expecting a growth of 2.4% while the Chinese economy is expecting a decline of about 5%. The forecast also explains that the Chinese economy could recover if the virus is contained in time. However, a failure of restoring things to normal would mean severe consequences. The consequences are not only economic-related but include death tolls and other social issues (Smith, 2020). 

The February 17, 2020 analysis by Smith shows that employment has been hit by over 50% in major cities like Wuhan, Zhejiang, Beijing, Jiangsu, and Guangdong. The Chinese market makes up to 20% of the global GDP. The interconnection between the Chinese economy and the world's economy means that drag on the Chinese economy would cascade to the world's economy. If the virus is not contained in time, supply chains would be disrupted, and it would be difficult, even for the world's second-largest economy to recover in time, Smith concludes (Smith, 2020). 

An Alternative View- Orange Wang: Coronavirus: China Pledges to Hit 2020 Targets despite Economic Impact of Epidemic 

Orange Wang, reporting to the South China Morning Post , gives an alternative optimistic look into the coronavirus conundrum. From Wang's perspective, the virus is a 'minor setback' to the Chinese social and economic prospects, and China is still determined to meet its 2020 economic goals. Wang quotes the Chinese President, Jinping, who signed a trade deal with the US in January of 2020, vowing to boost its economic relationship with the world's largest economy and meet its goals. The 2020 goals, though not well articulated so far, are focused on growing the GDP, tackling inflation, and unemployment. The GDP, China hopes, that will grow to double the 2010 GDP. However, Wang notes that this would require an annual growth of 5.6% in 2020 alone, which might be infeasible due to the coronavirus setback (Wang, 2020). 

Wang also reports that the Chinese economic forecasters, including the secretary of the National Development Reform Commission, Cong Liang, are very positive that the 2020 goals are still achievable. Cong, Wang quotes highlights other avenues that have shown resilience during a prior public health crisis. These sectors include e-commerce, online education, and online entertainment, intelligent manufacturing, and remote offices. Over 90% of the workers in the manufacturing hubs in Zhejiang province had reported back to duty, and over 70% are due to resume in other provinces. The efforts employed by the Chinese government to contain the spread are commendable, and these efforts are due to pay off (Wang, 2020). 

The report by Wang focused on providing hope to the world, and to China that the coronavirus though devastating, has not completely crippled the Chinese economy. However, the continued spread of the virus throws into question the viability of these promises, being that even the foreign investment sectors have been impacted. The competitiveness of the Chinese in the global arena is slowing down, and although resilient and innovative, a long-term stretch by the virus is bound to stutter it further. Wang, however, remains optimistic that the Chinese rhetoric is true, and if the virus is contained, these visions can be realized (Wang, 2020). 

Summary of similarities and Differences in the Articles 

From the analysis of the four articles, it is clear that the coronavirus has caused a global economic and social concern. All the authors agree that the prevalence of the virus is growing, and the containment measures are not yet effective. When Smith wrote the article on February 17, the victims were 70,000 (Smith, 2020). Also, when Partington penned his article on 23rd, the numbers had risen to 76,000 in just five days. To date, 82,000 cases have been reported, with 2,800 deaths and 32,000 recovery cases (Tracking coronavirus, 2020). Three articles, save for Wang's confirm that almost all industries based on the hubs that were most affected have not recovered fully. However, Wang reports that the recovery of these industries is underway, with over 70% of workers in various industries resuming economic production (Wang, 2020). Also, Wang proposes that the world should support China in the fight against the virus, and they should remain optimistic that the industries not affected by the stagger in the Chinese economy shall recover fully and help China reach the 2020 goals (Wang, 2020). 

The articles are also similar in their approach to the issue of economic devastation that the coronavirus has caused. All the articles agree that the virus has had a setback on the Chinese economy. The GDP growth of the economy has thus been slowed and has cascaded to other economies like that of Italy and the US. It is therefore clear that the Chinese economy is tied to the US economy, and by extension, the world (Wang, 2020). If the corona menace continues, not only will the Chinese people suffer the health consequences, but other industries in other countries, like the aviation industries, will register losses due to the cessation of travel to China (Smith, 2020). 

Reflection and Summary 

In summary, the coronavirus impact on the Chinese and the world economy is a clear example of how upsetting the production and supply chains of significant economies have a cascading effect on the larger economy. The changes lay an example of understanding the market and industry changes. The upset in the manufacturing, production, and distribution channels shows that all economic elements of the world’s largest economies are interlinked. As noticed, the losses are not only registered in China but are well-affecting countries that are linked, even in minor forms to China. The disruption of these services by the public health crisis may increase or reduce the prices of products and services. For instance, the halt in the manufacture of autonomous vehicle parts may increase the costs of Jaguar and Nissan products in China and other economies. Conversely, the drop in oil demand by China may increase the prices of petroleum products in China but may reduce the prices in other economies due to the sudden abundance. The supply chains have also been cut, meaning that the supply of products in China affiliated business partners may suffer. However, there is hope that the coronavirus may be tamed. The number of recoveries and the recent report by the US highlighting the development of trial vaccines for the disease, if successful, may save the world's health, and the Chinese economy. 

References 

Elliot Smith. 2020. Coronavirus could impact 5 million companies worldwide, new research shows. February 17. Accessed February 26, 2020. https://www.cnbc.com/2020/02/17/coronavirus-could-impact-5-million-companies-worldwide-research-shows.html. 

Orange Wang. 2020. Coronavirus: China pledges to hit 2020 targets despite the economic impact of the epidemic. February 24. Accessed February 26, 2020. https://www.scmp.com/economy/china-economy/article/3052088/coronavirus-china-pledges-hit-2020-targets-despite-economic. 

Richard Partington. 2020. The economic impact of coronavirus outbreak deepens. February 23. Accessed February 26, 2020. https://www.theguardian.com/business/2020/feb/23/economic-impact-of-coronavirus-outbreak-deepens. 

Rosamond Hutt. 2020. The economic effects of COVID-19 coronavirus around the world. February 17. Accessed February 26, 2020. https://www.weforum.org/agenda/2020/02/coronavirus-economic-effects-global-economy-trade-travel/. 

Tracking coronavirus: Map, data and timeline" .  BNO News . 10 February 2020.  Archived  from the original on 28 January 2020 . Retrieved  10 February  2020 . https://bnonews.com/index.php/2020/01/the-latest-coronavirus-cases/