Coronavirus has spread to 381 https://www.pharmaceutical-technology.com/features/coronavirus-outbreak-the-countries-affected/ countries to date and has been declared a global emergency by the World Health Organisation. According to the latest available data, it has killed over 2,6002https://www.aljazeera.com/news/2020/02/cloneofchina-coronavirus-outbreak-latest-updates-200223232154013.html people, with about 80,0003https://www.theguardian.com/world/live/2020/feb/25/coronavirus-live-updates-outbreak-latest-news-italy-italia-deaths-symptoms-china-stocks-wall-street-dow-jones-economy-falls confirmed cases worldwide. As this is a rapidly developing outbreak, the full ramifications and other details, such as how exactly the virus spreads, have yet to be confirmed.
Since coronavirus erupted, a lockdown was implemented – affecting 500 million4https://www.reuters.com/article/us-china-health-scale/under-chinas-coronavirus-lockdown-millions-have-nowhere-to-go-idUSKBN2081DB people across 48 cities and four provinces – with varying movement restrictions in place. The quarantine in Hubei province alone affects 58 million5https://www.scmp.com/news/china/politics/article/3050879/no-mahjong-no-card-games-hubei-province-full-lockdown-china people.
With China representing 19.7%6https://www.imf.org/external/datamapper/PPPSH@WEO/OEMDC/ADVEC/WEOWORLD/CHN of global GDP in PPP terms, the shutdown is inevitably impacting industries all over the world. Data shows that at least 51,000 companies globally have at least one direct or Tier 1 suppliers in Wuhan and the other 18 affected provinces.7https://www.dnb.co.uk/content/dam/english/economic-and-industry-insight/DNB_Business_Impact_of_the_Coronavirus_UK.pdf The perils of globalisation, which has given rise to vast and complex supply chains, are becoming increasingly apparent.
Indeed, what happens to China’s economy has global repercussions. The country’s GDP growth rate skyrocketed8https://data.worldbank.org/indicator/NY.GDP.MKTP.KD?locations=CN after it started reforming its economy in 1978. It now has the second-largest9https://www.nasdaq.com/articles/the-5-largest-economies-in-the-world-and-their-growth-in-2020-2020-01-22 GDP in nominal terms. According to preliminary estimates, China’s GDP stood at RMB 99,086.5bn10http://www.stats.gov.cn/english/PressRelease/202001/t20200117_1723398.html in 2019.
One of China’s economic powerhouses is manufacturing. The country is the largest car market and maker: in 2018, it made up 30%11https://www.statista.com/topics/1050/automobile-manufacturing-in-china/ of global output, while about 28 million12https://www.reuters.com/article/china-autos/global-automakers-cautious-about-chinas-market-at-start-of-new-decade-idUSL8N29E1QK units were bought domestically. Since automakers started to close their facilities in response to the outbreak, repercussions have materialised far and wide. The country’s shutdown forced a slew of manufacturers including Nissan Motor Co., Ltd. in Japan and Tesla, Inc. in Shanghai to put the brakes on production. Fiat Chrysler also temporarily closed its plant in Serbia, reportedly becoming the first automaker in Europe to take such action.13https://www.reuters.com/article/us-fiat-chrysler-china/fiat-chrysler-halts-production-in-serbia-over-china-disruption-idUSKBN2081UN
Global demand for oil has also been “hit hard”, according to the International Energy Agency (IEA).14https://www.iea.org/reports/oil-market-report-february-2020 The IEA has reduced its global growth forecast to the lowest rate since 2011, with “sharp” impacts on oil prices also reported. Given that China accounted for over three-quarters of global oil demand growth in 2019, “significant” consequences are expected in the sector. Other commodities that have been affected include copper and iron ore, and the wider metals market.15https://www.economist.com/finance-and-economics/2020/02/08/what-the-coronavirus-means-for-financial-markets
It is safe to say the outbreak has disrupted almost every major industry. Smartphones are another big-ticket item. Apple relies on China for almost half of its 77516https://www.washingtonpost.com/gdpr-consent/?next_url=https%3a%2f%2fwww.washingtonpost.com%2fbusiness%2feconomy%2feconomic-fallout-from-chinas-coronavirus-mounts-across-the-globe%2f2020%2f02%2f13%2f7bb69a12-4e8c-11ea-9b5c-eac5b16dafaa_story.html global supply facilities. It is also a substantial source of many materials: China makes about half17https://www.npr.org/2018/03/08/591637097/china-churns-out-half-the-worlds-steel-and-other-steelmakers-feel-pinched?t=1582216398381 the world’s steel and is one of the leading producers of iron ore.18https://www.prnewswire.com/news-releases/global-iron-ore-mining-markets-report-2018-2022-featuring-leading-players—vale-rio-tinto-anglo-american-plc-bhp-billiton–fortescue-metals-group-300780869.html It is also first for cement and silicon19https://prd-wret.s3-us-west-2.amazonaws.com/assets/palladium/production/atoms/files/mcs2019_all.pdf output, with the latter used as a semiconductor in computers and microelectronics, among other things.
Meanwhile, travel restrictions have been imposed on Chinese nationals and visitors, shipping segments are in disarray20https://www.ft.com/content/9f543f48-4d96-11ea-95a0-43d18ec715f5, and global brands that rely on China for a considerable portion of sales, such as Disney21https://www.cnbc.com/2020/02/04/disney-to-take-175-million-hit-from-the-coronavirus-outbreak.html, are expecting to take a financial hit. The virus also caused a stir across global stock markets as investors became increasingly nervous about the possible financial ramifications.
However, this virus is predominantly affecting its epicentre. Wuhan sits in Hubei – the province’s economy is the size of Sweden22https://www.scmp.com/business/banking-finance/article/3049796/coronavirus-shuts-down-provincial-economy-size-sweden and was the seventh largest in China in 2018. Many industries are concentrated here: it is home to about 10%23https://www.spglobal.com/platts/en/market-insights/latest-news/petrochemicals/020720-coronavirus-stalls-chinese-manufacturing-industry-polymer-demand of China’s car production capacity. It is also a huge supplier of auto components; more than half the 20 leading companies24https://www.scmp.com/business/companies/article/3049118/coronavirus-outbreak-adds-salt-wounded-global-car-industry in this sector have factories in Hubei, such as Robert Bosch, Valeo and ZF Friedrichshafen. The chemical industry25https://cen.acs.org/policy/global-health/Coronavirus-shadows-Chinas-chemical-industry/98/i6 also faces interruptions, with Hubei home to a number of factories and a refinery in Wuhan.
It is still difficult to predict whether the virus will burn itself out or is here to stay. The outbreak seemingly came without warning and has been extremely disruptive, serving as a reminder of how vulnerable the global economy is to public health emergencies.
As our understanding of the virus continues to evolve, and supply chains and investor sentiment are disrupted, the imminent and longer-term effects on myriad industries will become increasingly clear. Third Bridge Forum is investigating current events, bolstered by specialists’ insights from Interviews, in a series exploring the impacts of the virus on various industries.
The information used in compiling this document has been obtained by Third Bridge from experts participating in Forum Interviews. Third Bridge does not warrant the accuracy of the information and has not independently verified it. It should not be regarded as a trade recommendation or form the basis of any investment decision.
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