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Business News/ News / World/  World economy shudders as Coronavirus threatens global supply chains
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World economy shudders as Coronavirus threatens global supply chains

wsj

Manufacturers’ increased reliance on more interconnected China sees shortages ripple around the globe
  • China now accounts for nearly a third of world GDP growth, up from around 3% in 2000
  • Travellers are seen at the Shanghai Hongqiao Railway Station on the last day of the Spring Festival travel rush, as the country is hit by an outbreak of the novel coronavirus, in Shanghai, China. (Reuters)Premium
    Travellers are seen at the Shanghai Hongqiao Railway Station on the last day of the Spring Festival travel rush, as the country is hit by an outbreak of the novel coronavirus, in Shanghai, China. (Reuters)

    HONG KONG : The last time a coronavirus outbreak hit China in 2003, the global economy emerged relatively unscathed. Now, nearly two decades later, the growth-damping 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 world-wide 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 U.S., General Motors Co. 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 is working to mitigate the risk. Elsewhere, the story is the same—even in places that might seem remote.

    A rise in trade paved the way for a deluge of Chinese tourists and other spending worldwide.
    View Full Image
    A rise in trade paved the way for a deluge of Chinese tourists and other spending worldwide.

    Mostafiz Uddin, a bluejeans manufacturer in the southeastern Bangladeshi city of Chittagong, said he has been unable to fulfill an order for 100,000 women’s jeans because he can’t get the fabric he needs 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 $1 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 Motor Co., after shutting some of its Chinese factories this month, suspended one of its main assembly lines in Ulsan, a big South Korean city, because it couldn’t get parts from China. Asiana Airlines Inc., 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 are expected to drop 7% this quarter from the prior one, NLI Research Institute economist Taro Saito said. Videogame giant Nintendo Co. said this month that some shipments of its flagship Switch gaming console are delayed as it can’t get parts from Chinese factories.

    Piling onto two years of China-U.S. trade tensions, the impact of the new coronavirus, which has killed more than 2,000 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, some economists say.

    China now accounts for nearly a third of world GDP growth, up from around 3% 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% of global trade, said the World Bank. Its share was one-third in 2018. In Asia, that measure went from 16% to 41% during the period.

    The impact is felt everywhere. Apple Inc. said it won’t 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 canceled.

    A U.S. 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 around 0.5%, down from 1.5%. Thailand estimates tourist arrivals could drop by 13% this year as Chinese are grounded.

    In Vietnam, a small economy highly dependent on Chinese supply chains, exports in January fell 17.4% year-to-year to their second-lowest level since the U.S.-China trade war began, official data showed. Imports were down 13.7%, led by a 16% plunge in those from China.

    From steel to furniture, Vietnam built much of its economy on importing semifinished material from China, then exporting the finished products to developed economies such as the U.S. Now, over 50% 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 U.S., Japan and Korea as export destinations.

    But as Beijing massively 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% of Australia’s exports.

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

    The downturn also has spilled over to ancillary industries. Sydney-based WiseTech Global Ltd., which provides cloud-based software to track products, downgraded its 2020 earnings forecast 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.

    This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.

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