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Wuhan is the hub of transport and industry for central China. Photo: Shutterstock

Explainer | Why Wuhan is so important to China’s economy and the potential impact of the coronavirus

  • Wuhan, the hub of transport and industry for central China, has been sealed off to contain the spread of the deadly outbreak
  • Known as the ‘thoroughfare of China’, restrictions on its transport links will impact the economy outside the city, according to The Economist Intelligence Unit

Concerns are mounting about the economic toll from a deadly outbreak of coronavirus in the central Chinese city of Wuhan, a transport hub that is home to more than 11 million people and a major engine of growth in the world’s second largest economy.

Public transport in and out the city – including trains, planes and ferries – ground to a halt on Thursday morning as authorities placed the city on lockdown to try to contain the spread of the Sars-like virus that has already killed 17 people and infected hundreds more.
The quarantine measures are the first time Beijing has sealed off a city to fight an acute infectious disease, stoking public health concerns and raising questions about the effect of the disease on China’s economic growth, which is already at record lows.

“The economic impact for China – and potentially elsewhere – will be significant if the virus continues to spread,” The Economist Intelligence Unit (EIU) said in a report released on Thursday.

The economic impact for China – and potentially elsewhere – will be significant if the virus continues to spread
The Economist Intelligence Unit

The virus could shave between 0.5 to 1 percentage point off China’s gross domestic product growth (GDP) this year against a baseline forecast of 5.9 per cent, the EIU said.

And if the outbreak becomes an epidemic, rising expenditure on health care will limit room for spending in other areas, including on infrastructure investment and other stimulus measures aimed at shoring up the economy, it added.

The economic effect on Wuhan, the capital of Hubei province and the headquarters of major domestic car and steel producers, is likely to be unavoidable.

Known as the “thoroughfare of China”, the city acts as a transport and industrial hub for central China and is the region’s political, economic and commercial centre.

In 2018, when KPMG opened its Wuhan office, Benny Liu, the co-chairman of the accounting firm’s China operations, said: “As the core city in central China, Wuhan serves as a critical industrial, research and education base, and integrated transport hub for the nation.”

Wuhan’s GDP growth was 7.8 per cent in 2019, 1.7 percentage points higher than the national average, local government data showed. The total value of imports and exports reached 244 billion yuan (US$35.3 billion) last year, a record high that was 13.7 per cent above the previous year and accounted for 61.9 per cent of Hubei province’s overall foreign trade value.

More than 300 of the world’s top 500 companies have a presence in the city, including Microsoft, German-based software company SAP and French car manufacturer Groupe PSA.

In recent years the city has invested in becoming a hi-tech hub, particularly for the optics industry, but its reputation as China’s “motor city” for its booming car industry and its significance as a major logistics centre is where it has the greatest influence on China’s economy.

The EIU said that given its transport links – which span high-speed rail, air, road and riverways – any “restrictions there will have an impact outside the city.”

As many as 15 million people were expected to pass through Wuhan during the Lunar New Year holiday period, according to government-run hubeidaily.net.

The sudden restrictions on travel to and from the city could upend the holiday plans of millions of people in China, and hit the economy during a period where Chinese consumers typically splash out on restaurants and shopping.

W. Ian Lipkin, an epidemiologist at Columbia University, said the spread of coronavirus had serious economic and political implications.

“It's a very complicated issue for public health as well as economics, politics, culture,” he said.

Barclays investment bank said in a report that the economic impact of the virus was likely to be temporary, with the effects felt most keenly in transport, tourism and retail sales.

During the outbreak of Sars in 2013, China’s retail-sales growth bottomed out at 4.3 per cent in May, but promptly rebounded to 8.3 per cent in June and third quarter growth was recorded at 9.7 per cent, Barclays said. Similarly, passenger transport fell by 42 per cent and 22 per cent in May and June 2003, respectively, before bouncing back in September.

“Based on similar natural disasters and epidemic experiences in the past, its economic impact is short-term,” said Simon Zhao, associate dean of BNU-HKBU United International College’s division of humanities and social sciences.

Additional reporting Ryan Swift

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