Coronavirus threatens global supply chains

The growth-dampening ­effects of the coronavirus threaten to ripple around a world transformed by China’s boom.

Two men wearing face masks walk through a nearly empty terminal at Daxing international airport in Beijing Picture: AFP

The last time a coronavirus outbreak hit China in 2003, the global economy emerged relatively unscathed. Now, nearly two decades later, the growth-dampening ­effects of a similar pathogen threaten to ripple around a world transformed by China’s boom.

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 was working to mitigate the risk. Elsewhere, the story is the same — even in places that might seem remote.

Mostafiz Uddin, a blue jeans manufacturer in the southeastern Bangladeshi city of Chittagong, said he had been unable to fulfil an order for 100,000 women’s jeans because he could not get the fabric he needed from China.

“I am just waiting,” he said. “We have no option.”

A month after the epidemic forced factories into limbo past their usual Lunar New Year break — a handful are reopening — officials and economists are warning that an extended Chinese shutdown could cripple global manufacturing and cost the world up to $US1 trillion ($1.5 trillion) in lost output.

“The current situation is more serious than we thought,” South Korean President Moon Jae-in said on Tuesday. “We need to take emergency steps in this time of emergency.”

Hyundai, after shutting some of its Chinese factories this month, suspended one of its main assembly lines in Ulsan 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 from Wednesday.

Major electronics producers that depend on Chinese parts also have suspended output because of the outbreak. Others are weighing relocation. Japan’s exports to China were expected to drop 7 per cent this quarter from the prior one, NLI Research Institute economist Taro Saito said. Video game giant Nintendo said this month that some shipments of its flagship Switch gaming console were delayed as it could not get parts from Chinese factories.

Piling onto two years of China-US trade tensions, the impact of the coronavirus, which has killed more than 2000 people in China, could be severe. Countries most reliant on China could see more than half a percentage point wiped off their gross domestic product this year, economists say.

China now accounts for nearly a third of world GDP growth, up from about 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 would 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 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 last week cut its annual GDP forecast to about 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.

From steel to furniture, Vietnam built much of its economy on importing semi-finished material from China, then exporting the finished products to developed economies such as the US. Now, 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 last week.

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. But as Beijing invested in industry, China’s enormous hunger sucked up ever larger shipments of iron ore and coal from the continent. Last year, China accounted for nearly 40 per cent of Australia’s exports.

Australia’s BHP Billiton, the world’s largest miner, said it expected to revise its expectations for commodity-demand growth downward if the epidemic isn’t contained by the end of March.

The downturn also has spilt over to ancillary industries. Sydney-based WiseTech Global, which provides cloud-based software to track products, downgraded its 2020 earnings forecast on Wednesday, saying China’s shutdown had forced a delay of new product features it had hoped would lift revenue.

“This is a once-in-a-generation event,” said chief executive Richard White.