Coronavirus reveals both vulnerability and strength

No developed nation has benefited more from the economic rise of China this century than Australia. What we produce — efficiently, reliably and at the right price — is what the world’s most populous nation needs. We’ve become richer off the back of the China success story. But, as many observers fear, we’ve also succumbed to complacency, failing to retool our economy to raise and sustain our living standards for the longer term. Around one-third of our exports go to China, and the outbreak of the coronavirus in Wuhan has shown up vulnerabilities in our export prices, company profits, national income and government revenues. There are disruptions to global supply chains hitting importers, such as retailers, and growing fears that China’s coal and liquefied natural gas demand could sink.

As Scott Morrison said on Thursday, it’s difficult to model the likely fallout from the virus because of information gaps. Previous geomedical crises, such as severe acute respiratory syndrome in 2003, can give us only a partial picture. After a sharp slowdown in output, China roared back as the outbreak was contained and Beijing pump-primed its economy. But China is a far bigger player now, enmeshed into the world economic order. Reserve Bank governor Philip Lowe, a card-carrying optimist, believes the global spillovers could be larger than in 2003. Writing to state treasurers, Josh Frydenberg said the Chinese economy was now four times larger than it was in 2003. Economists at Commonwealth Bank say the implication from falling commodity prices is that Australia’s “rare” current account surplus will vanish and the budget surplus pencilled in for this financial year will prove elusive. CBA chief economist Michael Blythe notes the “twin surpluses” are useful protections in uncertain times.

Economists believe the tourism industry will be hit first and hardest. The Prime Minister said international tourism fell by 11 per cent in a quarter in the SARS era but was followed by a 16 per cent jump the next quarter. China’s share of our tourist market has grown sevenfold since then. More Australians today travel abroad than we receive in foreign visitors. Given the low dollar, it’s possible more of us will holiday at home, easing the heavy losses of businesses already affected by the bushfires. Universities could lose $2bn in fees if the 100,000 students stranded in China can’t return, according to an analysis by ratings agency S&P. While this is disruptive for institutions, and personally distressing for students, they will eventually return to complete their degrees and diplomas.

Mr Morrison took decisive action in imposing the travel ban last Saturday, knowing full well there would be an impact on the tourism, education and other export sectors, as well as some diplomatic blowback. The detention by Border Force officers at Australian airports on Sunday of 74 Chinese students, who were in transit when the ban came into effect, provoked a “not happy” reaction from Beijing’s deputy ambassador. Beijing sees the travel bans on its citizens, here and elsewhere, as a “vicious cycle of panic and over-reaction”. Education Minister Dan Tehan said these were “extraordinarily unusual circumstances”. Getting the balance right won’t be easy. Our authorities must maintain the dialogue with universities, students, global agencies and other governments.

But the Morrison government was right to put public safety at the heart of its moves. The travel ban was made on the medical advice from the Australian Health Protection Principal Committee, which relied on infectious disease specialists and mathematical modelling. As Health Minister Greg Hunt said, national health security is the driver of these decisions. In fact, Canberra has been at the forefront of global action with its 14-day quarantine period for Hubei province. The onus also has been put on citizens travelling from non-affected areas in China to isolate themselves at home. Local services are supporting this “containment approach”. With further evacuations from China likely to exceed the capacity of Christmas Island, isolated mining camps and hotels are being identified as temporary quarantine centres for the citizens returning from coronavirus hot spots.

Yet the scale of the coronavirus outbreak, and how long it will last, is unknown. It may be early days, or not. The world is at the mercy of Beijing, an uncomfortable thought at the best of times because of the communist state’s record of tight information control and rampant propaganda. As China correspondent Will Glasgow reported on Thursday, President Xi Jinping has dispatched a 300-strong PR army to “strengthen public opinion guidance”. The Xi regime has two speeds — cover-up and over-reaction, notes Alan Kohler — neither of which helps in this crisis. China’s bureaucratic culture, prioritising stability over all else, has most likely allowed the virus to spread.

We are in a delicate spot. Tough action has an economic cost — for quarantine facilities, medical care, lost production, a fall in export earnings and general confidence. As Paul Kelly explained on Wednesday, “the China epidemic is striking at the foundations of the government’s economic stance”. Relatively strong public finances, clear communication and sound institutions all work in our favour. A balanced budget in Canberra is a much better starting point than carrying big deficits. “We’ll do whatever is necessary to keep Australians safe,” Mr Morrison said on Thursday. GDP growth will be dented this quarter, but over the long haul we need to diversify our exports, fatten our safety buffers and lift our policy game.