China coronavirus could hit Beijing’s ability to meet US trade war deal import demands

Coronavirus originating in Wuhan has sent agriculture commodity prices tumbling and led to extended shutdown of Chinese factories and markets

Many analysts, already sceptical about China’s ability to buy US$200 billion of US goods in next two years, say impact of virus could cause further problems

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The outbreak has driven down commodity prices and placed huge swathes of Chinese territory on lockdown, potentially disrupting purchasing demands in the US-China trade deal. Photo: AP

Published: 10:58am, 29 Jan 2020Updated: 1:57pm, 17 Apr 2020

The rapid spread of the deadly coronavirus through China could sharply curtail Beijing’s ability to meet the purchasing agreement elements of the trade deal struck with the United States earlier this month, analysts said.

As part of the phase one deal signed on January 15, China is obliged to buy US$200 billion in additional US imports over two years on top of pre-trade war purchase levels.

However, with the outbreak driving down commodity prices and placing huge swathes of Chinese territory on lockdown, analysts are warning that import targets that already seemed aspirational have become even tougher to reach. The longer the crisis lasts, the worse the damage to China’s ability to meet the purchase target.

The virus, which has drawn comparison with the severe acute respiratory syndrome (Sars) outbreak that left severe economic and psychological scars on parts of China, is also expected to make a serious dent in the industrial engine of the world’s second largest economy.

As of Wednesday morning in China, more than 6,000 people had been infected with the virus, surpassing the total number of cases in the Sars epidemic in 2002-2003, with the vast majority of those in the mainland, including all of the deaths which now total more than 130.

Fear over a drop in Chinese demand for key commodities has pushed down the prices of many products that form a large part of the purchase commitment in the trade agreement. For example, the price of soybeans traded on US markets on Tuesday fell to the lowest level since last May, while corn, wheat, oil and vegetable oils prices also plunged.

Analysts were already sceptical about the lofty purchase targets, since they would require a significant reshuffling of China’s trading practices and the stockpiling of commodities for which it may not have domestic demand. Beijing has maintained repeatedly in its statements on the trade deal that it would only buy US goods according to its domestic demand.

Now, if China is to meet its target of importing an extra US$32 billion in agricultural goods and US$52.4 billion in energy products over two years, it will have to buy even larger volumes of commodities, despite already filling short and medium-term demand with early purchases from nations like Brazil, increased domestic cultivation, and an African swine fever crisis that severely cut demand for pig feed.