blog

economic impact of coronavirus in east and southeast asia

Economic Impact of Coronavirus in East and Southeast Asia

The Internet, quicker travel options, and faster ships provided the world with potential cost savings for a variety of industries. At first, outsourcing automotive factories was the thing. Soon, countries outsourced call centers, healthcare factories, and other industries. Asia is a focal point for many outsourced resources. India, Indonesia, and the Philippines have the most significant call-center locations. China is known for its cheap labor to manufacture millions of industrial goods, including medication, medical supplies, and electronics. Worrying about the global economy, we have to ask what the economic impact of the Coronavirus will be in East and Southeast Asia considering the outsourced resources, the population sizes, and the stability of the economies before a pandemic. To answer the question, we need to know what countries we are talking about, the stability of these countries, and the population.

Southeast Asian Countries

Southeast Asia is defined by the location of countries both attached to other Asian countries and in the Pacific and Indian Oceans. Southeast Asia begins east of India and south of China. There is mainland Southeast Asia and insular Southeast Asia. Mainland Southeast Asia consists of Laos, Cambodia, Thailand, Myanmar (Burma), Vietnam, and Singapore. Many people refer to these countries as Indochina. Other than Borneo (according to Britannica), insular Southeast Asia is made of Indonesia and the Philippines islands.

When we discuss Southeast Asia, we mean Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam. World Atlas sources state Borneo, Christmas Island, Cocos Island, and East Timor are part of Southeast Asia.

The Economy of Southeast Asia – Before the Virus

Southeast Asia is by no means an economic powerhouse. However, many of the countries have essential world products. The combined economies provide spices, timber, petroleum, natural gas, agricultural products, and electronics. Indonesia has the largest economy in the region with a GDP (gross domestic product) of a trillion dollars. Spices from Southeast Asia include cloves, pepper, ginger, and nutmeg.

Thailand is an insular country in terms of its economy. Most Southeast Asian countries do not mind selling land to foreigners to help their economic growth. Thailand has extremely specific rules regarding business relations, including how much money an investor must bring into the country and rights of ownership. A foreign investor can own up to 49% of the company but cannot own land. Such methods restrict economic growth but keep Thai money and property with Thai people.

Demographics

Southeast Asia has 1.7 million square miles of land. Roughly 655 million people live in these countries, with Indonesia as the most populated. Vietnam follows in population size, with Thailand ranking third.

East Asia

East Asia is also referred to as the Far East. The geographic region includes Mainland China, Taiwan, Hong Kong, Mongolia, Macau, North and South Korea, and Japan. If we discussed western Asia, this would consist of India and small states between India and China, like Bhutan and Nepal.

The Economy of East Asia – Before the Virus

East Asia was considered the fastest-growing region in the world, with a GDP of $19 trillion. The US, China, and Japan are the largest economies in the world, ranked one through three, respectively. Before the virus, China was on a path to be the largest economy in the world by 2030, according to World Atlas.

Demographics

East Asia has over 1.5 billion people. China has the most with over 1.4 billion. Statistics show Japan has 127 million, South Korea 51 million, and North Korea 26 million. Taiwan, Hong Kong, and Mongolia make up the rest.

Southeast Asia and the Coronavirus

On March 24, 2020, Richard Maude, a senior fellow at the Asia Society Policy Institute, provided his opinion on the region and the virus. Confirmed cases in Southeast Asia are small. However, Maude believes it is a reporting issue and an inability to test for the COVID-19 S and L strains. Maude fears the virus is spreading rapidly, but the “weak public health systems,” overcrowded cities, migrant worker flows, and poverty will ensure Southeast Asia will be one of the hardest-hit regions once the exact numbers are known.

Maude stated the World Health Organization (WHO) is asking for aggressive measures to be implemented. Unfortunately, governments are showing mixed responses. Only some locations are starting travel restrictions, partial shutdowns, and social distancing measures. Singapore has testing, and most other countries do not. Face mask supplies, medical equipment, and medicine are in short supply. Doctors are dying as much as regular people. Thailand has the strictest lockdown. Vietnam, Malaysia, and the Philippines did shut their borders to travelers.

Economic Impact in Southeast and East Asia

Due to the COVID-19 virus, the Southeast Asian and East Asian economies are going to suffer.

China is the largest trading partner for Southeast Asia and other Asian countries. Chinese tourists also number in the thousands for many of these countries, which can no longer accept travel. China has numerous foreign investments. Due to the virus outbreak in December, China stopped raw material supplies in January and February. Southeast Asia depends on these raw materials. The cause of the stoppage or slowing down of supplies is lower demand.

Southeast Asia provides textiles, automobile parts, shoes, and electronic products, which had to be slowed or stopped as the virus bloomed. The reduction in supply creation created the loss of thousands of jobs for those living in Southeast Asia. China has been stuck with exports in their ports to prevent further spread of the disease out of China.

Construction and infrastructure projects are halted due to shortages and the absence of workers. Several Chinese workers were outsourced to Southeast Asia for these projects. They returned home to celebrate the Lunar New Year and are now unable to travel back.

The most significant impact for Southeast Asia is going to be tourism and hospitality. These industries account for over 20 percent of income. Southeast Asia also has a tenuous hold on small and more significant businesses meaning they do not have the savings to get through troubled times. Several companies will likely fold and be unable to start again after life returns to a “new” normal.

Capital outflow in the emerging Southeast Asian markets is in crisis, with a potential stop of long-term development projects. Maude says it is guesswork for how much these economies will be affected while the spread of the virus is still ongoing. Projections can be made based on current numbers. However, if the spread continues, killing more people and decimating cash flow options for these smaller nations, the numbers may be extremely conservative.

Geopolitics and China

Before we can discuss East Asian countries in detail regarding the economy, geopolitics must be considered. Geopolitics may have a significant effect on the economic situation happening now and to come. First, Southeast Asian economies are dependent on China and are suffering greatly. It is possible given the politic turmoil that continues with the communist-led country that the pandemic will upset these relations even further and harm the economic recovery.

China is attempting to help Southeast Asian countries respond to the pandemic; however, it does not mean the relations will be repaired enough. Yes, at the moment, it seems everyone is happy to note help is arriving. Still, it can also be recognized as a movement to influence and advance China’s political hold, economic interests, and security. One could infer that these weakened economies may be under Chinese rule because of the geopolitical movements to establish relationships.

The US is certainly not gaining the same hold in their response to offer global health security. An inference here can be made toward the geopolitical climate the US has created recently with allies and the slower response to shutdown travel not only in an out of the US but also between states.

There is also a question about China’s integrity, and this has provided patchy success in Southeast Asia regarding the reception to their help. It is suspected by some news agencies that China knew about the virus outbreak and how serious it could be. Some naysayers state China did not implement measures quickly enough regarding the seriousness of COVID-19, and they may, in fact, be hiding their actual numbers of sick, dying, and recovered. The negative information is supposedly from CIA staff, current and retired. It is possible the information is accurate. However, it could also be part of the geopolitical game to influence government power around the world.

People are Scared

The truth is people are scared, and plenty of individuals have had adverse reactions to anyone they believe is of Chinese descent. One world leader was very outspoken about China and how all in the country are to blame for the pandemic. Individual citizens who are basing life on hate have already committed hate crimes against Asian nationalities.

When combined with stories increasing blame on China and their movements to contain the virus, it does create suspicion and potentially a more substantial economic impact.

Policies to contain the virus have varied throughout East and Southeast Asia, as they have with the entire world. No one, even the experts, is clear on how the economic troubles will shake out.

In fact, we are left with more questions:
● Will countries refocus on internal resources, with less outsourcing?
● Will the new alliances form?
● Will some of the powerhouse countries attempt takeovers of small, more vulnerable locations?
● Will some leaders attempt coups using military power and the virus as an excuse?
● Are resources, such as dairy, meat, and agricultural items going to become scarce?

Some of the questions do not have answers, and it would be guesswork of the worst sort to attempt answering them. For others, we can focus on historical patterns and fear.

Fear is currently leading people to over-shop in countries that have more income. Fear is also driving concerns about what is being purchased. Fruit, rice, spices, and other agricultural goods from Southeast and East Asia are not as popular as exports. Additionally, regulations on these exports are in place. There is fear that the virus will spread to goods due to how long germs expelled from a sick person can last on surfaces.

The progression of COVID-19, according to experts, began with a bat that infected a pangolin who then infected a human. Studies also show there are two strains, S and L, where L spreads more rapidly. However, these same experts state both strains are similar enough in DNA that a vaccine should stop the problem with the two strains. Unfortunately, all it takes is one person and an ability to mutate the virus to a more virulent strain for things to become worse.

Summing Up Economics

Southeast Asia is still dependent on China. Japan and South Korea are economically stable enough to see a recession and survive. North Korea has already had overpopulation and food resource scarcity, which could further tank their economy. The way for Southeast Asia and East Asia to stabilize is to continue with global exports, but will Western nations be receptive? A likely move would be to start manufacturing goods at home rather than outsourcing as much or bringing in more exports.

For now, China is maintaining its standing as one of the three largest and stable economies. But, the duration of the virus, the death toll, and fears may restructure where the powerful economies lie in rankings. Much of what will happen also depends on what political movements are made not only to form better relationships but to gain power over other countries. Both Southeast and East Asian countries are going to see a recession because there will be a new global recession. China, Japan, and South Korea are more likely to survive with some troubles versus small nations who are still dependent on China’s exports and outsourced workforce. We should prepare to see many industries suffer, with several smaller businesses in these Asian countries closing permanently. Big industries may survive, but they will take time to recover, and costs will impact the speed of recovery.