The growth-damping effects of the coronavirus threatens to ripple around the globe transformed by the escalation seen in China. Chinese consumption and production power growth from Asia to North America, Europe and beyond.
Manufacturers worldwide are tethered to China by the tentacles of a supply chain that relies on the country’s factories for many intermediate and finished goods.
With fears of contagion keeping Chinese workers home, production is getting pinched.
In the US, General Motors unions have warned that a lack of China-made parts could slow assembly lines at sport-utility vehicle plants in Michigan and Texas: the company said it is working to mitigate the risk. Elsewhere, the story is the same – even in places that might seem remote.
A manufacturer in the south-eastern city Chittagong in Bangladesh, said he has been unable to fulfil an order for 100,000 women’s jeans because he cannot get the fabric he needs from China. “I am just waiting, we have no option,” he said. A month after the epidemic forced factories into limbo – a handful are reopening – officials and economists are warning that an extended Chinese shutdown could cripple global manufacturing and cost the world up to $1 trillion in lost output.
“The current situation is more serious than we thought,” said South Korean president Moon Jae-in. “We need to take emergency steps in this time of emergency.”
Hyundai Motor Company, after shutting some of its Chinese factories last month, suspended one of its main assembly lines in Ulsan, a big South Korean city, because it could not get parts from China. Asiana Airlines South Korea’s second-largest airline, put its 10,500 employees on staggered shifts of 10 days’ unpaid leave.
Electronics producers that depend on Chinese parts also have suspended output because of the outbreak. Others are weighing relocation.
Japan’s exports to China are expected to drop 7 per cent this quarter from the previous one, NLI Research Institute economist Taro Saito said. Video game giant Nintendo said some shipments of its flagship Switch gaming console are delayed as it cannot get parts from Chinese factories.
Countries more reliant on China could see more than half a percentage point wiped off their gross domestic product this year, some economists say. China now accounts for nearly a third of world GDP growth, up from around 3 per cent in 2000.
Between 2000 and 2017, the world’s economic exposure to China tripled, according to estimates by the McKinsey Global Institute. That rising dependence weighs most heavily on Asia.
In 2000, China accounted for just 1.2 per cent of global trade, said the World Bank. Its share was one-third in 2018. In Asia, that measure went from 16 per cent to 41 per cent during the period.
The impact is felt everywhere. Apple said it will not meet revenue projections for the first quarter as the epidemic shuts its China plants. In Europe, container-ship operators are preparing profit warnings as dozens of trips out of China are cancelled.
A US freeze on visitors from China (as well as other countries) is a blow to hotels and retailers that rely on their spending. Asian economies that have grown dependent on Chinese visitors and commerce are reeling.
Singapore recently cut its annual GDP forecast to around 0.5 per cent, down from 1.5 per cent. Thailand estimates tourist arrivals could drop by 13 per cent this year as Chinese are grounded.
In Vietnam, a small economy highly dependent on Chinese supply chains, exports in January fell 17.4 per cent year-to-year to their second-lowest level since the US-China trade war began, official data showed. Imports were down 13.7 per cent, led by a 16 per cent plunge in those from China. Over 50 per cent of manufacturers are experiencing difficulty sourcing supplies because of disruptions from the coronavirus, the American Chamber of Commerce in Vietnam said.
Australia, with an economy six times as large as Vietnam’s, is also feeling the effects. Two decades ago, China was a relatively peripheral trading partner, trailing the US, Japan and Korea as export destinations. Last year, China accounted for nearly 40 per cent of Australia’s exports, iron ore and coal being among the main items.
Now the downturn has spilled over to ancillary industries. Sydney-based WiseTech Global downgraded its 2020 earnings forecast, saying China’s shutdown had forced a delay of new product features it had hoped would lift revenue. Chief executive, Richard White said: “This is a once-in-a-generation event.”
(The writer is our foreign correspondent based in the UK. He can be reached at andyjalil@aol.com)
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