The Coronavirus Outbreak and its Economic Impact
As the new coronavirus spreads, Chinese cities are going under lockdown. Many businesses and schools are closed, and citizens are being advised to stay at home. As public health experts tackle the challenges posed by the coronavirus outbreak there is growing concern about the impact on China’s economy and what it means to the international business community. In the short-term, trade, consumption, and economic growth will slow.
However, the impact of the coronavirus will not be spread evenly across China’s economy—including demand for imports. The Chinese government’s extension of the Lunar New Year holidays and advisory for people to minimize time spent outside means people will be working—and spending—less outside of their home. Transportation, tourism, brick-and-mortar retail and exporting sectors will be hit the hardest. Mersol & Luo is committed to bringing local insight to our current and upcoming clients to ensure they are successful through the challenges the coronavirus may bring.
Moving to Cyberspace
Rather than halting all economic activities, much of them have shifted online. Businesses turn to remote work and students take classes online. The same applies to consumer spending. Instead of going out, people turn to e-commerce platforms such as Taobao and JD.com. Couriers and delivery drivers can still be seen crisscrossing cities to deliver ever more food, beverages (including alcohol) and other consumer goods to Chinese homes. At the same time, domestic production has taken a hit as many Chinese factories remain closed. These two trends will help stabilize—or even increase—overall demand for many categories of imported consumer goods.
Even as countries tighten restrictions on commercial flights to and from China, governments are working to minimize the impact on freight transportation, import/export, and customs processing. This includes Hong Kong, which is a top destination for goods being re-exported to Mainland China. At the same time, the Chinese government is taking steps to address or avoid potential shortages of consumers goods, including the swift implementation of the recently signed phase one trade agreement between China and the United States . In the trade deal, China agreed to purchase $200 billion worth of US goods, including $75 billion of manufactured goods and $40 billion in agriculture.
Stay Tuned; Don’t Panic
As public health experts gain a better understanding of the coronavirus and first quarter economic data is released, businesses can more easily assess the economic impact of the virus and how consumers are responding. Businesses should work with their local partners such as Mersol & Luo to closely monitor the situation so they can make timely adjustments to their strategy in China.