With the new coronavirus threatening to get out of control as it disperses from Wuhan in central China, investors are fleeing financial markets as fast as Chinese citizens are fleeing "wet markets" that would normally be serving fresh meats to hungry holiday crowds.
On Monday, Japanese stocks lost 1.6% in the form of the Topix index, while the Nikkei 225 of export-heavy large caps dropped 2.0%. Chinese stock markets were due to resume trading on Friday, but now will stay closed until next Monday, Feb. 3. That's in keeping with a two-day extension of the Lunar New Year holiday on the mainland. Hong Kong's markets for the moment are still due to resume trading on Wednesday.
Chinese banks have been told by the regulatory authorities to adjust their opening hours or suspend business as they see necessary based on the local severity of the outbreak and to encourage online banking.
As for China's currency, the yuan is again weakening toward 7.0 to the U.S. dollar, a level it strengthened past thanks to the "Phase One" trade deal. In the last week, the yuan has lost 2.3% against the Japanese yen, a haven of retreat for Japanese investors.
Fears spread in Hong Kong
The coronovirus death count stands at 81 as of Monday, with 2,804 confirmed infections in China. But no one here in Hong Kong believes those figures. The most likely figure for infections is around 6,000, according to researchers from Northeastern University and Imperial College London, although their worst-case scenario projects almost 10,000.
To Hong Kongers, anyone coming from the mainland might be infected. There have been calls to close the borders to anyone from mainland China. The much-hated Hong Kong government says that's not practical, although it has belatedly started to block travelers from Hubei Province, where Wuhan is the capital and where the virus originated. The fear is they may be coming via secondary cities and masking their true origin.
What we are calling in Hong Kong the Wuhan Acute Respiratory Syndrome, or WARS, has forced the closure of schools here until Feb. 17 at the earliest. Everybody is wearing masks; nobody is going out.
China's leaders under pressure
The disease represents one of the gravest challenges to the power of the Chinese Communist Party in its 70-year reign. It comes at a particularly bad time, with the economy much worse off than official figures show, according to my contacts doing business there; with Hong Kong in the throes of a long-lasting pro-democracy, anti-government revolt; widespread anger about corruption within the unelected Communist Party leadership; election results that delivered a strong mandate to the China-skeptic administration in Taiwan; and at Lunar New Year to boot, a time supposed to be the biggest celebration in the Chinese calendar.
No doubt President Xi Jinping has warned that China faces a "grave situation" in face of the disease. He could just as easily be talking about the test facing his administration. The centralized government derives its authority from perpetuating economic development and maintaining social stability. Both of those justifications for continued Communist rule are now under threat.
Premier Li Keqiang has now stepped forward to take charge, appearing in Wuhan to cheerlead efforts. That gives Xi deniability if the attempts to combat the virus continue to falter.
China is due on Thursday to report official estimates of domestic and international travel and travel-related spending over the holiday period. Prior to the outbreak, 400 million Chinese citizens were expected to be on the move, making 440 million train trips and 79 million plane flights. But with Wuhan at the nexus of north-south and east-west high-speed railway lines, that level of travel has been dramatically curtailed.
Casinos take hit
Casinos will likely be among the biggest losers, so it will be interesting to hear what Las Vegas Sands LVS has to say when it reports earnings on Thursday. Las Vegas Sands has the biggest market share among Macau casino operators, a territory that depends on mainland visitors for its lifeblood.
Macau, the only city in greater China where casinos are legal, gets around 19 million overnight visitors per year, with 72% coming from mainland China and another 19% from Hong Kong. The earnings won't yet reflect any impact, but executives should give some kind of estimation of how hard business has been hit. Macau has already confirmed six cases of WARS.
We have eight confirmed cases here in Hong Kong. So far, those people appear to have spent time in Wuhan. The ban on travelers from Hubei Province works if they are Hubei residents, because that information appears on their identification documents. But the government is relying on travelers who passed through Wuhan to declare that information. Hong Kongers worry they'll lie about that to gain entry to a city with high levels of health care.
Twelve Hubei residents were blocked from entry into Hong Kong between midnight and 6 a.m. on Monday. The Wuhan mayor says 5 million people left Wuhan before it was locked down, leaving 9 million people in the city.
Captives in their own homes
China is expanding a lockdown that affects much of Hubei, home to 60 million people, and effectively has people quarantined in their own homes. It has also banned the trade in wild animals nationwide, with the disease having likely made a species jump from bats into an unknown host before mutating again into a form that can infect humans.
The head of China's National Health Commission, Ma Xiaowei, has warned that the virus appears to have a greater ability for human-to-human transmission than initially expected. Ma also warned that patients can be infectious while not appearing sick during an incubation period of up to 14 days, which wasn't the case with SARS. The "epidemic is now entering a more serious and complex period," Ma says.
Although less deadly than SARS, or Sudden Acute Respiratory Syndrome, which hit southern China hard in late 2002 and early 2003, it may therefore pose a greater hazard in terms of its scope. At least patients with SARS, which killed 813 people globally, got obviously and seriously sick within five days.
The United States, France and Japan have announced an evacuation of their citizens from Wuhan, with Australia considering such a move. For those of us still in China, we face a nervy next few weeks, particularly once the Lunar New Year holiday ends and life is meant to go back to normal.