Sizzle Fizzle: Virus May Weaken China’s Economic Growth

It’s the unforeseen events that send economies into rough patches, toward slowing growth and even into decline.

And while we’re not speculating that an economy that grows 6 percent a year should suddenly find itself in the red, in China, the recent spreading of the coronavirus (commonly known as the Wuhan virus) may have an impact that lingers beyond the outbreak.

In the latest spate of news, the Chinese government has ordered travel agencies to suspend domestic and international tours. There have also been transportation curbs imposed on cities that are home to an estimated 40 million people. Shanghai Disneyland has been shuttered indefinitely and movie houses have canceled screenings.

In other words, social life is coming to a standstill. Among the ripple effects are that, especially with the limits on Chinese tourism, wallets snap shut. It’s been well-reported that Chinese consumers buy roughly a third of luxury goods, and many do so while traveling.

And while we are quick to note that health crises are more important than dollars and yuan, the timing may be rough for the firms – and, on a larger stage, the foreign markets – that depend on the Chinese consumer for top- and bottom-line torque.

The Lunar New Year this weekend will, of course, be a muted event, where consumers had been predicted to spend more than $150 billion. Retailers such as Gucci and Nike had released new advertising campaigns and merchandise in anticipation of a spending deluge. McDonald’s has halted operations in a number of cities amid the outbreak.

And there’s another impact as a result of the virus. Wuhan itself is a central point of transport and industrial production for the country, and the flow of commerce will be affected.

As reported by the Economist Intelligence Unit and relayed in the South China Morning Post, the Wuhan virus could hit China’s economic growth by 50 basis points to a full percentage point. Should a full-blown epidemic ensue, the ripple effects will have waves far beyond China’s borders.

Sizzle

Digital banking: German smartphone bank N26 sees a 40 percent increase in customers to five million customers since the summer, and says it added more individuals in 2019 than all prior years combined. Particular strength has been seen in Germany, France and Austria.

Mastercard/SoFi: Mastercard and digital personal finance company SoFi partner on a suite of products and experiences to benefit SoFi’s nearly one million customers, including debit cards.

Cross-border commerce: PayPal and UnionPay International strike a pact to boost digital payments – particularly in cross-border transactions for Chinese consumers. As of this year, Chinese consumers account for about a third of luxury goods sales.

Fizzle

Libra: Call it Libra’s death by 1000 cuts? Central banks are teaming up to explore digital currencies, and now Vodafone becomes the latest company to leave the Libra Association. The Libra project is no closer to making the leap from concept to reality than it was months ago.

WeWork’s fire sale: As lease volumes are drying up, WeWork has started to sell off stakes in its side ventures to help boost results. In the most recent news, the company sold its business management software development company Teem and a minority stake it held in startup The Wing.

Wells Fargo’s civil suit: Amid ongoing investigations and restructuring, the Office of the Comptroller of the Currency (OCC) is putting together civil charges against a number of former company executives tied to actions in the well-publicized retail banking scandals.