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How does the Coronavirus Outbreak in China affect the global economy? [Stock/Social Media/ U.S. Market]
Christiane Zhao
Empower clients to transform their payment experience // Strategic Marketing @G+D // Accessibility is for all // Opinions are my own // Advisor at Harvard // Book Author // Money20/20 RiseUp’24// Web3 Bitcoin Talent FS
Background
The virus appeared at the time of the Lunar New Year festival, which is the most important holiday for Chinese. Tens of millions of people return to their hometowns to reunite with their family during this period or visit relatives and friends to exchange pockets of money, a tradition in the Chinese New Year. On the 23rd of January, the number of confirmed cases in China rose to 830, including 177 cases in a severe condition and 25 deaths (National Health Commission).
Compared with the SARS outbreak 17 years ago, the Chinese government appears to be determined to deal with the outbreak and develop International cooperation, by identifying it quickly and sharing genetic sequences. Beijing seems to act much quicker this time to address fear. The Chinese National Health Commission said the country will start nationwide screening soon. The Chinese government-backed supported campaigns initiated by numerous medical professionals across the country to control the disease. These professionals are lauded as the healthcare heroes of the country. It includes several regional celebrity doctors such as Zhong Nan Shan in Guangdong. While the appearance of these celebrity figures are meant to help the population fight against the rumours and disease, there are also growing number of Weibo users praising the individuals rather than the Chinese government who are managing and financially supporting these medical campaign.
Stock Market
The load up of face masks
From 20th to 21st January, more than 80 million masks were sold on Taobao, the most prominent e-commerce platform owned by Alibaba. While the platform announced limits on the price restrictions on masks, a pack of 20*3M masks can be sold for up to 1,100 yuan (USD$158), which was sold for 178 yuan (USD$26) in November. This was followed by sharp 10% rises in face mask manufactures such as Tianjin Teda and Shanghai Dragon in 21st January, being aware that 10% is the maximum product-stock prices may change in China.
Cao Jun, the general manager of a mask manufacture factory in Ningbo China, said that the entire nation is facing a significant shortage of face masks. Given its regular production rate of 400,000 per day, their clients are demanding more than 200 million masks per day (referred from China Daily). Local authorities are working with factories to maximise production to feed the increasing demand pumped up by social media and increasing public fear. American companies including 3M and Honeywell International also announced they would also contribute to this battle. Online sales platforms such as Alibaba also announced they are collaborating with 92 mask manufacturers to supply more than 42 million masks in order to keep the price stable and affordable.
What's more dramatic is that on January 22, Jiete Biological officially landed on the Science and Technology Innovation Board. Chairman Yuan Jianhua mentioned in the company's listing and listing ceremony that the company has issued 10 million masks for emergency production tasks, and said that it had just received relevant information from Guangzhou. Two million mask orders for the department. But that night the company issued an apology announcement, saying that it was challenging to complete the supply of 2 million masks.
The entire supply chain of face masks, hand sanitizers and other related preventative customer products reflect the reality that thousands of people are abandoning the spring festival and putting an effort into sales and production.
There is also a sign that the outbreak is causing a growing demand for rubber in the long term, as there is an increasing awareness of medical and healthcare protection from preventable transmission via infected subjects. Top Glove and Kossan Rubber Industries gained 5.9% and 6.3% in the past few days, according to the Wall Street Journal.
Virus outbreak fuels volatility of biotech stocks
The outbreak of the pneumonia-causing coronavirus leads to an uptrend of shares for some Chinese drugmakers, including Jiangsu Bioprefectus Technologies(688399.SS) and YiChang HEC ChangJiang Pharmaceutical. Both of their share-price performance rallied approximately 20% to their maximum level allowed by the Science and Technology Innovation boards. The sharp positive signs also appear on many other Chinese pharmaceutical stocks in Shanghai and Shenzhen bourses. Cyrus Ng, a healthcare analyst at Jefferies Hong Kong, claimed there would be a continually growing demand on drugs and pharmaceutical-related products in China. Therefore these stocks might continue to grow in the upcoming period.
It also lifted the carnival of concept stocks. Scibio, a company listed on the Science and Technology Innovation Board. On January 15, it issued an announcement saying that in response to the epidemic caused by the new coronavirus in Wuhan, the company developed a new coronavirus nucleic acid detection reagent based on fluorescent PCR technology on January 13, 2020 Kit and coronavirus universal nucleic acid detection kit. However, Shuobi also pointed out that the above products are only used for the detection of new coronaviruses and other coronaviruses, not for treatment. The above products are only for scientific research products; no product registration certificate is required. In terms of its impact on the company, Sogo Bio claims that the sales of the above products are relatively small and will not affect the company's current revenue and profits, nor will it constitute a new business or a change in its main business.
Subsequently, Megaworld has a daily limit of 20%.
The hype of capital against the pharmaceutical and mask stocks are very obvious, regardless of whether its product is active or passive to the coronavirus. For instance, Miracle Pharmaceuticals stocks have reached a cumulative deviation of 20.75% within two consecutive trading days. Miracle Pharmaceuticals products are related to anti-tumour, cold and cough, cardiovascular and cerebrovascular, and gynaecological treatment fields. It has nothing to do with pneumonia.
As in 2003, the strength of concept stocks may not be a manifestation of long-term value.
Tourism Sectors
The investors also show lost confidence in the travel stocks, as the spread of the virus leads to a tremendous cancellation of flights and trips during the Chinese New Year, which is usually described as the world’s largest annual human migration across the years. There is also strong condemnation on the corporate social responsibility for flight/trip cancellation due to the uncontrollable trends on social media like Weibo and Wechat. According to an article by the Wall Street Journal on 20th January, the Chinese state-owned carrier AirChina closed at 7.1% lower on the Hong Kong Stock Exchange. These travel companies might not expect such a commercial crisis. Before the virus outbreak, Ctrip.com, the largest travel platform in China, expected Chinese to take roughly 450 million trips within the country between 24th to 30th of January. But now, customers worry about the unwanted exposure and intensified temperature-screening in the trip. Given China’s economic growth reaching the lowest level in nearly three decades, it is not an easy year for the Chinese tourism sector. Despite the Lunar New Year holiday usually being a peak travel season for Chinese, the tourism companies will now need to deal with hundreds of thousands of cancellations of flights, trains and hotels.
International investors are concerned that the diseases might lead to significant economic consequences as it might be rapidly transmitted across China or even Asia. The spread of coronavirus is not only major downside risk for Asia but also the United States and the international market. Since the United States and China showed indications of progress on their trade deal, several of the indexes were repeatedly hitting high, until the announcement of the coronavirus. The crisis also leads to a decline in shares for international companies, after the first cases of coronavirus were confirmed in the United States on 21st January. Shares of international travelling companies like MGM Resorts International and Las Vegas Sands dropped for 5% or more, and American Airlines and United Airlines Holding dropped more than the 4% range.
Retails & Others
Stocks of European luxury retailers fell as fears about deadly virus grew, as Chinese customers have become an essential indicator for the performance of global luxury retailers. The European 600 Retail Index dropped approximately 6% within one day on 21st January, and companies like Christian Dior SE dropped for 2.3% in Paris. Many of the European luxury retailers previously predicted the Lunar Chinese New Year will bring significant increases in the number of sales both overseas and locally, as many of the Chinese tends to shop and exchange gifts during this festival.
Companies in the film and television entertainment sector including Ali Pictures, IMAX China and Happy Media fell 0.76%, 1.60%, and 0.71% on the 22nd; Langham-SS, Shangri-La (Asia) and Jin Mao in the hotel and resort sector Hotel-SS fell by 1.75%, 1.01% and 0.99% respectively.
Social media became a primary and active public health channel in China
The use of social media is acting as a leading role in the coronavirus event. It raises public awareness about health protection and prevention in a greater extent than ever before. In the Wuhan epidemic information dissemination, Ding Xiang Yuan, China’s biggest healthcare information sharing website with more than two million doctors registered, became the main force of the new media that transmitted scientific information and stabilized the hearts of the people. There is no doubt that health communication on the new media platform combines the advantages of mass communication and interpersonal communication.
WeChat, one of the most popular messaging apps by Tencent, is enabling the synchronous or asynchronous interactions of users. It has laid a good technical foundation for the rise of health consultation services, including reserve doctor’s meeting, report infected patients, and provide donations to the infected patients. There are a large number of professional health websites in China that offer direct online communication services between netizens and physicians. Besides, the official institutions in the field of medical and health in China have gradually entered the healthy dissemination of new media. The Gansu Provincial Department of Health has set up a microblog matrix, a Zhejiang microblog inquiry platform "Zhejiang Weibo Doctor", and a Beijing Health Bureau "Capital Health Weibo Platform".
Given the coronavirus outbreak, social media is enabling Chinese people to find a sense of belonging to their own group, exchange health information, provide emotional support, and collectively express personal appeals and fight for the rights and interests in a good communication atmosphere. In order to obtain the recognition and support of each other and outside the group, the ultimate effect of healthy communication is achieved.
Misinformation has been rampant via Social Media.
A post circulating on Wechat suggested that cities, where patients had fallen sick, should set off fireworks to kill the disease in the air. Another post declared vinegar and indigowoad root to be the ideal solution to prevent infection, which China’s National Health Commission later explained in its own social media post wouldn’t fend off the deadly virus.
Posts related to infection were viewed more than 1.5 billion times on Weibo, and more than 100,000 views on WeChat, the country’s most popular messaging app.
Different from the SARS outbreak in 2003, the improved transparency of information by health authorities and social media users enables better control of the further spread of the virus. Guangzhou and Beijing, which were exposed to SARS, hold a 15% share of the national GDP; the entire Hubei district only accounts for 4% of the national GDP. Back to 17 years ago, social media platforms aren’t the primary tool to spread information in China and provide public health information such as washing hands or wearing face masks. However, the unfettered online discussion also brings the risk of criticism of the Chinese government.
Social media also raises discussion about citizen responsibilities and human rights. Users in Weibo are urging the public to take necessary health precautions to reduce the risk of getting infected by the virus. Information spreads at an incredibly fast speed, regardless of whether it is real or fake. From Zhang Wuben, Li Yi, Liu Fengjun to Ma Lingyue, many so-called "health experts" rose to fame under careful packaging and successfully attracted a large number of fans. The emergence of new media is even more like this "false expert" and "false health" self Marketing has created extremely favourable conditions.
The Escape business due to the city lockdown
In order to control the spread of the pneumonia epidemic of coronavirus, China has locked down at least ten cities in central China’s Hubei province, including Wuhan, Huanggang, Ezhou and more. It happened very suddenly, and many of the residents in these countries get notices via news and social media. The majority was given in the early morning on the 23rd, the city’s bus, subway, ferry and long-distance passenger transportation has been suspected, and citizens should not leave Wuhan without special reasons.
“I can drive you from Wuhan to Loutian this afternoon, it costs 1000 RMB($150),” several drivers announced it in multiple Wuhan-carpool QQ groups, QQ is similar to messages, which is also another app under Tencent like Wechat. A Beijing News reporter asked whether it can be cheaper, the driver mentioned that there are already a few passengers charged 800 yuan in this car, it can be cheaper if the client can leave immediately. At the same time, Wuhan’s street filled with people rushing to the main train stations. Thousands of travellers packed in the station’s waiting hall after the government announced plans to lock down the city.
“If I don’t leave now, I won’t be able to get out,” said Gong Xiang, a warehouse manager who get early notice of the travel ban at 3 AM. Right after she received the notice, she booked a 9 AM train to Handan, a city in the north of the Hubei District in China.
Reference:
https://www.wsj.com/articles/the-dark-business-of-coronavirus-11579690108
https://www.bbc.com/news/business-51171395
https://www.nytimes.com/2020/01/23/world/asia/wuhan-coronavirus.html
https://www.bbc.com/news/business-51202519
https://www.bbc.com/news/business-51202519