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Take a deep breath

Feb 24, 2020

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Coronavirus

China’s service economy imperiled by virus emergency

Scott Tong Jan 24, 2020
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Residents wear masks while buying vegetables in the market on Jan. 23th, 2020 in Wuhan, China. Getty Images
Coronavirus

China’s service economy imperiled by virus emergency

Scott Tong Jan 24, 2020
Residents wear masks while buying vegetables in the market on Jan. 23th, 2020 in Wuhan, China. Getty Images
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The coronavirus in China has come during Chinese New Year, its biggest holiday. Which means it’s hitting what’s now a critical part of the Chinese economy: the service sector.

Chinese factories are struggling from the U.S. trade war, but China’s overall economy is still growing at a rate of about 6% because of its service economy: retail, transportation, hotels and entertainment.

“One of the big successes for China’s policymakers has been a rebalancing away from an old, clunking, heavily-polluting industrial sector, towards a larger role for services,” said Tom Orlik, chief economist at Bloomberg Economics. 

Services are now at risk because the virus is keeping people at home. Movie screenings have been canceled. Travel is down, and so is eating out.

Mohamed El-Erian, chief economic adviser at Allianz, said the service slowdown could spill over to the rest of the world.

‘If you are even a U.S. company that flies people to the impacted areas, you’re going to be impacted,” El-Erian said. “The longer this uncertainty lasts, the more the spillovers start to cascade.”

During China’s SARS virus outbreak 17 years ago, growth dipped and came right back. Now, though, said Michael Hirson who covers China at the Eurasia Group, China’s economy is much bigger — and more globally linked. 

“And that’s why you see companies like cruise lines and tourism [and] casinos being impacted by this, in ways that they weren’t when SARS hit,” Hirson said.

One bright spot could be video games for people stuck at home. The top game in China right now is called “Plague Inc.

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