Beyond the Coronavirus Crisis: Prepare Now

The cost of novel coronavirus pneumonia will surpass all previous outbreaks. But companies that act now can minimize the worst effects and emerge from the crisis stronger. By Weiwen Han, Karen Harris and Thomas LuediBeyond the Coronavirus Crisis: Prepare Now Weiwen Han is a Bain & Company partner based in Hong Kong, and he leads the firm’s Greater China offices. Karen Harris is managing director of Bain’s Macro Trends Group in New York. Thomas Luedi is a Bain partner based in Shanghai.The authors thank Shijing Liu and Lily Shao for their contributions to this analysis. Copyright © 2020 Bain & Company, Inc. All rights reserved. 1Beyond the Coronavirus Crisis: Prepare NowAs offi cials in China and around the world marshal their resources to contain the human cost of the novel coronavirus pneumonia outbreak, many businesses are just beginning to assess the economic effects. It is early days, but China’s experience with epidemics over the past 20 years can provide a sense of what this latest outbreak may mean for China’s economy. Also, history provides some sign-posts that can help companies navigate through the crisis and emerge stronger and better positioned.Among those past epidemics—avian fl u, swine fl u and SARS—only the 2002–2003 SARS outbreak seems truly comparable. So far, the novel coronavirus appears to be less deadly to those it infects, with a mortality rate of 2%–3% vs. SARS’ rate of 6.6%. But it is much more contagious—coronavirus already has eight times the number of cases reported during the entire SARS epidemic, and the resulting number of deaths is now higher as well.The resulting economic impact will be severe. Both epidemics triggered nationwide containment actions, but this time, the Chinese government acted faster and with much stricter measures, such as a widespread quarantine, nationwide extended public holidays, restrictions on interprovincial travel for some 20 provinces and local transport controls.In fi nancial terms, the biggest difference between this outbreak and SARS is the size of China’s econ-omy, which was RMB 13.74 trillion in 2003. SARS reduced China’s GDP by almost 1% or approximately RMB 100 billion. In 2003, however, China represented just 4% of global GDP.Coronavirus to cost China more than previous outbreaksCoronavirusSARSSwine fluBird flu20202002–20032009–20102014–2017Sources: UBS, Goldman Sachs, Citibank, JP Morgan, BOC International and Bain analysis for coronavirus; Morgan Stanley data for previous outbreaksImpact of past epidemics on China's annual GDPRMB –300B to –500BRMB –170BRMB –100BRMB –70B 2Beyond the Coronavirus Crisis: Prepare NowAt almost RMB 100 trillion today, China’s economy is seven times larger. It makes up more than 16% of global GDP and plays a critical role in many global supply chains. Although lower than SARS as a percentage of China’s GDP, the current estimates of coronavirus’s economic impact call for a 0.2%–0.5% reduction in China’s GDP, which could cost as much as RMB 500 billion.China’s experience with SARS provides a useful benchmark for what to expect (and what may be different) with this more virulent outbreak.Lessons from SARSWe won’t know for some time whether those early estimates will prove too optimistic, but China’s experience with SARS still provides a useful benchmark for what to expect (and what may be different) with this more virulent outbreak.China's real GDP growth rate12%11%10%9%8%7%6%5%Q1 2002Q2 2002Q3 2002Q4 2002Q1 2003Q2 2003Q3 2003Q4 2003Q1 2004Q2 2004Quarterly growth rate, year over yearGDP dropped 2% duringthe 2003 SARS outbreakSARS’ impact on China’s economy was short-livedSource: National Bureau of Statistics of China 3Beyond the Coronavirus Crisis: Prepare NowThe impact of SARS on China’s economy was short-lived and largely confi ned to the second quarter of 2003. The GDP growth rate fell 2 percentage points that quarter but then rebounded during the remainder of the year.Tertiary industries (services) took the biggest hit, with transportation, hospitality/food and beverage, and the fi nancial sector all down 3 or more percentage points. Secondary industries, such as indus-trials and construction, were also hit hard, while primary industries, largely agricultural, were only modestly affected.Differences between coronavirus and SARS could result in more severe economic consequences. Most notable is the coronavirus contagion rate, which has been exacerbated by the timing of the outbreak over Chinese New Year, when many Chinese travel.Lessons from SARS: These industries and sectors were hit hardest-1.1-1.7-2.0-3.6-3.6-5.4Primary industriesSecondary industriesTertiary industriesIndustrialConstructionTransportationHospitality/food and beverageFinancialAgriculture andother raw goodsSource: National Bureau of Statistics of ChinaGDP growth rate change, Q1 to Q2 2003 (percentage points) 4Beyond the Coronavirus Crisis: Prepare NowRobust offl ine-to-online delivery networks may help bolster consump-tion, even w