VTZ

The Coronavirus Epidemic in the Chinese & World Economy

In the last few weeks of February, negative forecasts have been increased regarding the economic impact of the coronavirus outbreak in Asia, derived from the increase in cases of coronavirus in the region. In our report, VTZ’s Chinese Desk shares an update on the sectors that will be most affected by this health crisis, as well as the actions of the Chinese government.

Manufacturing Sector

According to the Caixin General Purchase Managers Index (PMI) the index for February 2020 fell to 40.3 as a result of the impact of the coronavirus, this is the first time that the number falls below the 50-point margin since the survey began in April 2004. This means that production was significantly reduced during the month of February, with many companies operating below 50% of their normal capacity.

Diverse media in China and abroad identify the exporting economies of Asia as the main affected by the current situation, Singapore and Hong Kong mainly. However, the dependence on China’s supply chains of Asian manufacturing economies will also create production disruptions, thus affecting the result of exports from countries such as Korea, Japan, among other Southeast Asian countries.

Although Chinese media report that the main manufacturing provinces have restarted operations, the reality is that the majority of migrant workers, who form the workforce in the country’s manufacturing centers, have not yet returned to factories, either by lack of transport or to avoid mandatory quarantine prior to joining a company.

Given this situation, businessmen and authorities have had to implement measures such as offering free transportation and lodging to migrant workers, as well as subsidies to companies that hire personnel.

The second problem faced by manufacturing centers is interruptions in the supply and shortage of materials. The above is caused by the transport controls implemented in the provinces, as well as the lack of personnel operating the transport.

In addition, shipping companies have been affected by their operations, due to lack of personnel, as well as mandatory quarantines implemented in countries in the region.

Tourism

China is the main exporter of tourism in the region, Southeast Asian economies, as well as the Special Administrative Regions of Hong Kong and Macao have been severely impacted by travel restrictions on Chinese citizens.

In recent days, the hotel sector in Hong Kong has registered one-digit occupancy rates, as well as a significant number of restaurants that have had to close due to lack of tourism.

For its part, Macao kept the casinos closed for 15 days as a measure to prevent the spread of the virus, seriously affecting the tourism and entertainment industry.

In recent weeks, multiple events, trade shows, and conventions have been canceled, and in fact, it is expected that the Tokyo 2020 Olympics will be rescheduled by the end of the year.

On the other hand, the reduction of flights in the region, as well as the imposition of quarantine for citizens or people who have been in countries with reported coronavirus cases have caused staff cuts in regional airlines, as well as unpaid licenses for air personnel and airports.

Retail Sales

In the same way, analysts report a great impact on retail sales, media report impact on retail sales, mainly in destinations with duty-free offer and high purchasing power such as Korea, Singapore, Japan, and Hong Kong.

In these economies, media report closures and reduction of opening hours in the main department stores, while economic authorities and developers begin to announce measures to mitigate the impact such as income and cash subsidies.

However, online sales and e-commerce platforms have increased substantially. Therefore, support and subsidy schemes have been created to promote SME products and temporary employment for people affected by the health crisis.

Minister of Commerce (MOFCOM)

On February 11, MOFOCOM issued a circular to local commercial agencies for the purpose of stabilizing and promoting foreign investment in China, minimizing the impact of the epidemic. MOFCOM notes, among several actions, to make use of agency platforms located abroad to promote investment and cooperation projects, adopt different policies to address various business sectors and measures aimed at overcoming obstacles, implement business, facilitation policies, guide companies in tax, finance, tax, social security, employment, and government procurement matters and treat foreign companies in a non-discriminatory fashion.

Conclusion

It is difficult to predict the total impact that the coronavirus outbreak will have on the Chinese economy and in the Asia region. MOFCOM aims to stabilize the impact to present and future foreign investment, but the listed actions do not specify whether subsidies, loans or incentives will be granted to such investment.

However, it is clear that unlike the SARS outbreak in 2003, today world economies have greater interaction with China, and in some sectors, they are widely dependent. This greater integration will definitely affect the prospects of global economic growth, where recovery will depend on how quickly the epidemic outbreak is controlled.