Faculty & Research
Faculty & Research
How will this ‘black swan’ event impact the Asian economy?
By Bala Ramasamy
As the coronavirus spreads around the globe, we should take the time to ask (and try to answer) some important questions about China’s reaction to the coronavirus outbreak and its impact on the Chinese and Asian economy.
In terms of the Asian economy as a whole, what will the impact of the coronavirus be?
I think there will be only a short- to medium-term impact of no more than six months to two years. Obviously, the main sectors are manufacturing because of the disruptions in the supply chain, and the hospitality and travel sector because of travel restrictions and the fear of infection. All countries will be affected by this because China is the largest exporter in the world. But, Australia and other countries in East Asia will be most affected because of the extent of their relationship with China. These countries are also among the favourites among Chinese tourists.
How important is foreign direct investment for China and how may this be affected going forward?
New FDI projects will be postponed. Investments in the supply chain will be reconsidered. So, definitely FDI in 2020 will be markedly less. But the size of FDI compared to the GDP is small. So, I would not expect the fall in FDI to have a dramatic effect on China’s GDP. Rather, it’s the reduction in domestic consumption and investment that would have bigger impact on economic activity.
How can companies affected by the virus maintain corporate social responsibility commitments and how important is CSR at this critical juncture?
Like the earthquake in Sichuan about 10 years ago, the role of companies in reducing the pain and anxiety of the population becomes more important. Whether this is by providing minimum income to their workers despite zero production, or offering assistance in any way to Hubei, the role of companies will be remembered for many years.
How should foreign companies adjust their strategy in the coming 12 months with regard to the Chinese economy?
The COVID-19 outbreak should be seen as a small blip in China’s trajectory. Companies that are only interested in the short term have no place in today’s China.
Are there any positives which may arise from this disruption to China’s business?
A heightened spirit of patriotism would hopefully burn brighter and provide a stronger impetus to future economic growth. I am still not convinced that moving part of the supply chain out of China to Southeast Asia, or not to cluster the supply chain within a particular geography, are good strategies. This is a black swan event and it could have taken place anywhere in the world.
Dr. Bala Ramasamy is Professor of Economics and Associate Dean at CEIBS. For more on his teaching and research interests, please visit his faculty profile.