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Cost of China’s anti-virus fight rises with workers idle

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BEIJING —
Real estate agent Du Xuekun’s sales usually jump after the Lunar New Year holiday. But this year, Du has been at home for a month with no income after vast swathes of China’s economy were shut down in a sweeping effort to contain a virus outbreak.

Du, who lives in Jiaozhuo, near the central city of Zhengzhou, is one of millions of people who are bearing the soaring cost of the most extreme anti-disease measures ever imposed. Some businesses are reopening, but Beijing has told the public to stay home if possible.

“People will buy food and clothes online but for sure won’t buy an apartment without seeing it,” said Du.

Industries from auto sales to travel to retailing effectively shut down after curbs were imposed starting Jan. 23 with the suspension of most access to Wuhan, an industrial metropolis of 11 million people at the center of the outbreak.

Travel restrictions expanded to cities with more than 60 million people, while curbs on business spread nationwide. The Lunar New Year holiday was extended to keep factories and offices closed. Nationwide, thousands of restaurants and cinemas have been shut to prevent crowds from gathering.

The rising losses threaten to become a political liability for the ruling Communist Party. Local officials have been ordered to revive business activity but are moving cautiously.

By Sunday, some 1,665 deaths and 68,500 cases had been reported in the two months since the first infections in December.

Economists warn optimism that the disease might be under control is premature. Even if auto manufacturing and other business resumes as planned, activity won’t be back to normal until at least mid-March.

Losses are expected to be so large that forecasters have cut estimates for China’s economic growth.

Forecasters including Capital Economics say growth, already at multi-decade lows, might fall to 2% in the three months ending in March, down from the previous quarter’s official figure of 6%.

“If the economy really gets into a tailspin, the challenge for the party will be substantially increased,” said Steve Tsang, director of the China Institute at London’s School of Oriental and African Studies.

Locking down Wuhan might have hurt more than it helped by causing panic and was “very damaging to the economy,” said Tsang.

“They will have to rethink the lockdown approach,” he said.

The ruling party has responded to the mounting economic pressure by promising tax breaks and subsidies to companies hurt by the anti-disease measures.

The government needs to “maintain stable economic operation and social harmony,” President Xi Jinping said Wednesday.

On Friday, the Ministry of Finance announced that companies with monthly sales below 100,000 yuan ($14,000) will be exempt from value-added and other taxes. It said companies that cannot repay loans might be allowed to invoke “force majeure,” a last-resort legal measure that can waive obligations in disasters.

Travel and hospitality were hardest-hit after the government canceled group tours and told businesspeople to put off travel. Airlines canceled thousands of flights and hotels closed.

The manager of a travel agency in Shenyang, the biggest city in China’s northeast, said its monthly revenue, usually 100,000 yuan ($14,000), fell to zero. He said the agency still is paying rent and wages of 20,000 yuan ($2,800) a month.

“We don’t expect to see a recovery until May or June,” said the manager, who would give only his surname, Xu. “We do hope the government can give us a tax exemption or reduction, but we still have seen no subsidies.”

Property sales have fallen to almost zero over the past three weeks. The industry employs millions of people and drives demand for appliances, furniture and other consumer goods.

Du, the real estate salesman, said he usually closes two sales a month and earns 7,000-8,000 yuan ($1,000-$1,100). He needs to make a 3,000-yuan ($430) monthly loan payment whether he works or not.

“I have no base salary and live on commission,” said Du, 27. “Without sales, there will be no income.”

Chinese leaders already were struggling to shore up economic growth that slowed to 6.1% last year thanks to weak consumer demand and a tariff war with Washington. Some economists, citing industry surveys and other data, say real growth already was much weaker than that.

The anti-disease measures closed factories that supply the world with smartphones, furniture, shoes, toys and household appliances. That sent shockwaves through other developing countries that supply industrial components and iron ore, copper and other commodities.

South Korea and other economies that rely on China as an export market face potential job losses.

E-commerce companies are hiring extra workers to cope with a flood of demand as families stay home and buy groceries online. But streets in Beijing and other major cities are still empty and eerily quiet.

Auto sales plunged 20.2% in January from a year earlier, deepening a 2-year-old decline in the industry’s biggest global market. Sales fell 9.6% last year to 21.4 million, well below their 2017 peak of 24.7 million.

That is squeezing global automakers that look to China to drive revenue as they spend billions of dollars to develop electric vehicles to meet government sales targets.

“Enterprises are under huge pressure,” said a statement by an industry group, the China Association of Automobile Manufacturers.

China rebounded relatively quickly from its 2002-03 outbreak of SARS, or severe acute respiratory syndrome, but economic conditions now are less rosy.

SARS struck when China was entering a history-making boom powered by construction and exports. Growth peaked at a blistering 14.2% in 2007. By contrast, the latest virus hit in the midst of a slowdown.

In smartphones, Apple, Huawei and other brands face a potential hit because China is both their No. 1 market and global production base.

Shipments might fall as much as 50% this quarter compared with the final three months of 2019, according to research firm Canalys.

There is a “high risk” that component suppliers, with factory workers still stranded in their hometowns by travel bans, “will not be able to ramp up to normal capacity if the outbreak is prolonged,” Canalys said in a report.

Apple and other global vendors face a “serious impact” if the virus spreads and those suppliers close, the report said.

“The current situation will likely lead to some of the worst ever shipment numbers,” it said.

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