Coronavirus to test just how reliant the world is on Chinese manufacturers, with Asia braced for shock wave

With regions of China accounting for 80 per cent of exports on lockdown, factories around Asia are being forced into looking for alternative supplies

Workers trapped in China amid travel bans, while trade watchers as far afield as California wait for boats from China to stop arriving

5-MIN READ5-MIN

The world’s second largest economy remains on lockdown, with factories in 14 provinces covering 70 per cent of China’s gross domestic product and 80 per cent of its exports ordered not to open until Monday at the earliest. Photo: Reuters

Published: 8:00pm, 4 Feb 2020Updated: 10:17pm, 5 Feb 2020

Manufacturing and logistics players reliant on China's giant economy are braced for an incoming shock wave from the spread of the novel coronavirus, which is set to test “just how reliant we have grown on Chinese manufacturers”.

The world’s second largest economy remains on lockdown, with factories in 14 provinces covering 70 per cent of China’s gross domestic product and 80 per cent of its exports ordered not to open until Monday at the earliest.

The virus has claimed over 420 lives, the vast majority in China, but has infected people throughout the region, with more than 25 countries having confirmed cases as of Tuesday. In an effort to contain the spread, authorities in the likes of the United States, Singapore and Vietnam have restricted air traffic to and from China, while the movement of Chinese people across borders is also being restricted.

“Anything that limits the free movement of goods or people is bad for shipping,” said Tim Huxley, founder of the Hong Kong container freight shipper, Mandarin Shipping. “The expected demand decline in China is already being factored into prices of commodities and shipping rates. It’s very difficult to make any decisions while we’re still unclear about how long this is going to go on for.”

Anything that limits the free movement of goods or people is bad for shipping. It’s very difficult to make any decisions while we’re still unclear about how long this is going to go on for.

Tim Huxley

Some are sceptical as to whether manufacturing will resume as normal on Monday, given the virus is still spreading, albeit at a slower rate in recent days. Huge numbers of migrant workers are trapped in parts of China that are under an official lockdown covering more than 60 million people, while many others are in areas unofficially closed off by local officials.

“Some entire factories may not reopen at all because their entire management and a good part of their operators are still blocked in Hubei province – and that is true of many factories,” said Renaud Anjoram, partner and CEO of manufacturing consultancy firm Sofeast.

Within mainland China, oil demand has dried up by 20 per cent, Bloomberg reported, amid a freeze in travel, while metal prices have plunged on consecutive days since markets reopened on Monday, a sign of expected weak demand in key industrial sectors.

All this means the optimism that followed the signing of a phase one US-China trade deal barely three weeks ago already feels like a distant memory.