Coronavirus fallout ‘could last for months’

Australian companies doing business with China are bracing themselves for coronavirus fallout that could take months.

A doctor looking at a lung CT image at a hospital in Yunmeng county, Xiaogan city, in China's central Hubei province. Picture: AFP

Australian companies doing business with China are bracing themselves for potential coronavirus fallout that could take months rather than weeks.

Many are quietly putting in place contingency planning for a drawn-out crisis which could wreak havoc on supply chains. This could impact staffing and for some force a round of cost cuts.

“All our members are trying to assess the likely impact of the virus on their business,” the president of the Australia China Business Council, King & Wood Mallesons’ China practice consultant David Olsson, told The Weekend Australian.

“Many are taking a hit to their bottom line at the moment, but they don’t know how long it could go on for.”

Australian companies doing business with China were seeking information and making preparations in case the fallout from the virus, which has killed more than 2200 people in China and 11 in other countries, continues for the next few months.

“They are starting to think about what happens if the situation goes on beyond two or three months.

“This would involve longer-term risks and thinking about how they would mitigate them.

“We are optimistic that China will be able to contain the spread of the virus and that it will slow down in the near future.

“But we are uncertain about what is the near future. Is it one month, three months or five?”

This was particularly important for small businesses if their ­exports or imports from China were delayed.

Mr Olsson said if the impact continued companies might have to rethink their supply chains and export markets.

China is Australia’s largest export market and its largest single source of imports, a two-way trade of more than $200bn.

The disruption of trade is now flowing through to some of Australia’s major companies. Large sections of China have been in lockdown for the past few weeks, and people from China are banned from flying directly into Australia.

The Australia China Business Council has more than 1000 corporate members ranging from big companies to small businesses.

A slew of major companies have revealed their exposure to the coronavirus in profit results in the past week.

These include Qantas, which has suspended flights to China until the end of March, and has cut back 15 per cent of its flights to Asia, with CEO Alan Joyce estimating the full-year impact could be between $100m and $150m. Mr Joyce also outlined plans to put hundreds of staff on leave.

He said some weaker airlines in Asia could go out of business as a result of the big fall-off in travel in the region, including the loss of the Chinese tourist market.

BHP chief executive Mike Henry warned that the demand for resources could be hit unless the virus was contained by the end of March, with oil, copper and steel use all potentially affected. “If the viral outbreak is not demonstrably well contained within the March quarter, we expect to revise our expectations for economic and commodity demand growth down­wards,” the company said.

A Chinese man wears a protective mask in Beijing, China on Friday. The World Health Organisation (WHO) has declared a global public health emergency. Picture: Getty Images

Monadelphous CEO Rob Velletri warned that there was a possibility profits could be affected given China was a source of steel products for its engineering and construction work in Australia.

Other companies including Sydney Airport and Crown Casino also reported potential impacts from the virus.

Companies are becoming increasingly concerned about the need for the government and other groups to show more public support for China despite Canberra’s decision to close the borders to Chinese travellers.

They are concerned other countries have done much more to show sympathy for China during this time of crisis.

There are fears that China’s anger over the government’s decision to ban travellers could further damage the political relationship, with potential negative impacts on trade.

Star Entertainment CEO Matt Bekier said this week he was “worried” that Australia’s strained relations with China could slow the recovery when the virus crisis was over.

“I don’t think the Chinese will necessarily prioritise (resuming) flights (from Australia) to China when they have alternatives,” he said.

He said when countries had fallen out of favour in China in the past it had flow-on effects on tourism.

“My personal view is that we can and should do a lot better. We, as a nation, seem to be very suspicious of China and not as welcoming of the opportunities that China presents to us.

“China is a great opportunity for Australia.

“In the long run I am confident that the attraction of Australia will win out.

“But it is entirely possible and highly likely that the recovery is going to be a bit slower than we would all like to see.”

Mr Olsson said it was good to see some governments, particularly Victoria’s, taking a more proactive stance.

He rejected suggestions the federal government had not been as publicly sympathetic as it could have been.

He said there had been “a lot going on behind the scenes” at a federal level to assess the implications of the coronavirus.

He said some efforts by Canberra had not received much public attention.

“It is difficult to be upbeat and positive in these times,” he said. He admitted tensions were “running high at times” over the fallout from the coronavirus, with the education sector in particular critical of closing the borders to travellers from China.

He said he hoped that the government could consider other ways to handle the travel ban once it came up for review next week.

“Other nations have taken a very different view and allowed people to come in directly from China and self-quarantine.

“I would hope the government is looking at other mechanisms which will allow us to resume the flow of people and goods which is so critical.

“At a policy level, we need to reflect deeply on the shared relationship we have with China and the fact that we have a very strong Chinese diaspora in Australia.”

Mr Olsson said with factories in China only slowly restarting “there was every chance there could be a long disruption to supply chains”.

“In many cases factories in China have not been producing for some time. They have gone through the spring festival shutdown period and most are only just coming back to manufacturing.”

“There could also be delays once Chinese factories returned to normal because of a backlog of orders.

“Globally the backlog is going to be very significant. It will take many months before Chinese manufacturing returns to normal.”