Friday, 24 April 2020
Connecting the world: Implication of Covid-19 virus on the Chinese business climate
On March 19, China reported no new locally transmitted cases of COVID-19 for the first day since the outbreak of the virus in the Hubei province capital of Wuhan in December last year. Here in Shanghai economy is resuming activity, offices are reopening, and consumers are tentatively venturing outdoors and returning to stores since a few weeks. Elsewhere in China factories are restarting production, and although the overall situation is moving steadily in a positive direction, the virus is still spreading rapidly overseas, posing increasing challenges to China’s economy as well.
Impact on Chinese ports and foreign trade
Many analysts believe that China’s ports could face a second, more prolonged period of supply chain disruptions as international demand slows; it is expected the near-term impact on trade growth in coming quarters (Q2 & Q3) is likely to be the worst ever, as economies stall and external demand faces imminent collapse on large scale quarantine measures across global major economies.
China’s total container throughput fell 10.6% in the first two months of 2020 compared to the year before, while exports dropped 17.2%. Second-quarter figures are expected to be harder hit especially for foreign trade; however domestic trade might be picking up which would be stimulated by the government, in order to compensate overall losses.
Major effect on shipping & logistics sector in China
The container shipping alliances have recently announced the cancellation of quite some sailings especially on the Asia-Europe, Transpacific & Transatlantic trades.
China’s ports and shipping firms are gearing up for a second round of supply chain disruptions as the spread of the coronavirus pandemic globally strangles off international demand.
China’s port association expects container handling volumes in China to fall 5 – 10% in the second quarter compared to last year, while imports of industrial materials such as coal and ores are also expected to slow alongside falling domestic production. China’s logistics sector especially road transport has returned to normal compared to a 80% decline in February 2020.
However, Sino-Europe railway transportation is showing a steady growth, with 1.941 departures (+15%) and transported some 174.000 TEU (+18%) during Q1, among which laden boxes over 98%.
Influence on China’s industries
Now that the COVID-19 has become a pandemic, China’s foreign trade in general is facing huge challenges and uncertainties in the coming months. Especially for the labor-intensive exporters of fashion products, they already saw a decline of 18.8% in Jan-Feb 2020. And the situation is very likely to continue or worsen in Q2 since lots of their orders have been suspended, delayed or even cancelled due to the shutdown of retail stores in EU and the U.S.
China’s small and medium-sized enterprises (SMEs) are recovering slowly, according to Standard Chartered, with a full recovery expected in the second quarter. China has rolled out a string of policies to support the SMEs. SMEs are the major economic driver for the Chinese economy, there are over 100 million SMEs in China, which contribute over 60% of China’s overall GDP & about 80% of employment in China.
Auto sales to accelerate: Echoing optimism from other companies in the sector, Volkswagen hopes to see its China sales pick up to 1 million units in March, up from 250,000 in February, said the auto company’s CEO. “In 2020, Volkswagen expects a decline of 3-15% in the Chinese market but confirmed plans to invest more than 4 billion euros ($4.4 billion) this year there, with about 40% of that sum earmarked for electric driving.”
The manufacturing industry in general gained pace in March and resumed expansion, while all other industries continued to contract. The services and technology sectors performed slightly better than wholesale and retail and other industries including real estate, logistics, construction and food processing.
The COVID-19 crisis, however, has brought fresh investment opportunities in sectors including medical science and artificial intelligence. Also, there might be of potential in meat and meat products (especially pork) import, which is worth USD 4.57 billion and up 121.8% year on year, the highest growth rate among all Chinese imports in the first 2 months of 2020.
Digitisation in shipping & logistics will grow even faster
Most large manufacturing companies will re-consider their current just-in-time inventory management and their reliance on global networks of suppliers. Raw material stocks will be increased as additional reserve cushions in order to prevent exhausted inventory and production disruption due to a global shutdown as the one we are currently facing. Logistics’ hubs will also be re-considered so that they are better positioned.
Source: Port Of Rotterdam