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Deadly Infection Keeps Chinese Consumers From Spending

China was counting on consumers to underpin its already slowing economy. Now, authorities are advising people to stay home, and many residents are too frightened anyway to eat out, shop, see movies or travel as a deadly virus passes person to person.

Anxiety may be spreading faster than the coronavirus that emerged from the central Chinese city of Wuhan in recent weeks. That adds risks to what was already expected to be a very challenging year for the economy in China.

Many services core to China’s consumer boom are grinding to a halt as people forgo plans to spend money during the country’s biggest annual holiday, the Lunar New Year that began Saturday. Local authorities in some parts of China have ordered theaters, museums and other venues to shut down. Wuhan halted public transportation in, out and around the city, and more than a dozen other cities in central China have since followed suit.

Beijing resident Fang Yin said she is bracing for a boring holiday after canceling plans to travel to Nanjing. “We have nowhere to go, not even to see a movie,” she said.

Her caution — multiplied nationwide as the contagious pneumonia has spread to virtually every province in China — threatens to set back a vibrant Chinese consumer sector, which had been a source of optimism for big American brands like Nike Inc. and IMAX Corp. The companies didn’t immediately respond to a request to comment.

“China’s economic growth was already struggling before the outbreak, and such a public health crisis threatens to drag growth even lower,” said Chen Gong, a U.S.-based economist who has advised city governments in China.

Even before the coronavirus emerged, the economy appeared poised to expand more slowly than 2019’s rate of 6.1%, a nearly three-decade low.

If the outbreak doesn’t stabilize by March, China’s economic growth might fall below 6% in the first quarter, according to French bank Société Générale SA, which has forecast 6.1% growth. Economists generally believe that a growth rate of 6% this year is psychologically important because it would enable Beijing’s leaders to reach a politically important goal of doubling the size of the economy from 2010 levels.

The consumer sector took an economic hit when severe acute respiratory syndrome, or SARS, swept across China and into other countries from booming southern China in late 2002 and early 2003, killing hundreds of people.

Today, consumer spending makes up a bigger share of the economy, said Zhou Hao, an economist at Commerzbank. Official numbers put consumer activity at just over half the total economy. When SARS hit, China’s economy hinged far more on big-ticket government-led investment.

Even so, China’s growth slowed to 9.1% in the second quarter of 2003 when SARS peaked — down from an 11.1% growth rate in the first quarter. The country hadn’t yet built a high-speed rail network or many subway systems that spur consumer activity but are suddenly sources of anxiety about places to get infected. But China also didn’t have an online economy, which makes it easy to consume from home.

The current coronavirus outbreak could cost more than 40 billion yuan ($5.8 billion), which would shave about 1 percentage point off China’s 2020 growth rate, according to the economist Mr. Chen, who based his estimate on a preliminary assessment of the situation and a comparison with the impact from SARS.

Some sectors are set to be hit especially hard. China’s movie business typically does nearly one-tenth of its $9 billion-plus annual box office during the weeklong holiday. Seven film premieres are canceled, including “Leap,” a biopic starring Gong Li as the coach of the national volleyball team that was expected to fare especially well.

Shanghai Disneyland, meanwhile, closed on Friday and offered refunds to ticket holders. Crowds were so thin at the city’s normally packed mock Chinese city, Yu Gardens, that one young family thought it was a safe place to stroll. “Here, there’s hardly anyone, not like normally,” said Zhao Lei, the mother of two restless children.

How long the outbreak lasts will determine whether other economic drivers, such as factory production, are also affected.

Big cities including Beijing and Shanghai said schools will remain closed at least through Feb. 17, and some through the end of February.

For Wuhan, an economic engine of central China and now the world’s largest quarantine zone, the damage is likely to be especially severe. The city is a transportation hub roughly four hours by train from Beijing and Shanghai.

It hosts factories for some of the world’s largest car makers including General Motors Co., as well as the brewer Anheuser-Busch InBev SA. Economists with ANZ said that if the weeklong holiday disruption is extended further by the epidemic, that could drag on Wuhan’s overall industrial production.

Prices surged in the city as the shutdown sparked a run on food. Wuhan resident Mao Qingzhi said Friday that when his mother-in-law asked a vendor why turnip prices had tripled, the man suggested he was risking his life keeping his shop open.

For the Lunar New Year holiday, tens of millions of Chinese travel in the world’s biggest annual migration, usually a boon for airlines and hotels.

The period also involves gift-giving and lavish meals, events that typically raise consumer spending but this year will be curbed as people fear risking contagion. Many travel to see relatives yet tack on holidays afterward — holidays that many say they are canceling. On the first day of the New Year, rail and air passenger figures were off about 41% from the year earlier, China’s Ministry of Transport said Sunday.

No growth in airline passenger numbers is expected for the first half of the year, AllianceBernstein analysts are now forecasting, adding that they predict lower Chinese spending elsewhere, including in the gambling center of Macau.

Macau’s chief executive said Thursday that the Chinese territory hadn’t ruled out closing all of its casinos, following the first confirmed coronavirus cases there. Hong Kong-listed shares of all six casino operators in Macau were down significantly for the week.
Source: Dow Jones

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