China has become the central manufacturing hub of many global business operations and any disruption in its output is expected to have repercussions elsewhere through regional and global value chains.
With the Asian country being an important cog in the wheels of production worldwide, the outbreak of coronavirus in Wuhan has affected many companies with China’s Manufacturing Purchasing Manager’s Index (PMI), a critical production index, falling by about 22 points in February.
According to UNCTAD, this index is highly correlated with exports and such a decline implies a reduction in exports of about 2 per cent on an annualized basis.
Considerable impact on the economy and society
In other words, the drop observed in February spread over the year is equivalent to -2 per cent of the supply of intermediate goods, adds the UN’s trade body.
On February 23, 2020, China’s President Xi Jinping, in a televised address said, “It is unavoidable that the novel coronavirus epidemic will have a considerable impact on the economy and society.”
A day later, Japanese Finance Minister Taro Aso told a G20 gathering in Riyadh, Saudi Arabia that the spread of the new coronavirus is a public health crisis “that could pose a serious risk to the macroeconomy through the halt in production activities, interruptions of people’s movement and cut-off of supply chains.”
UNCTAD notes that besides its worrying effects on human life, the novel strain of coronavirus (COVID-19) has the potential to significantly slow down not only the Chinese economy but also the global economy. China has become the central manufacturing hub of many global business operations.
In the UNCTAD paper titled, Global trade impact of the Coronavirus (COVID-19) Epidemic, container vessel departures from Shanghai were substantially lower in the first half of February with an increase in the second half.
“However, the Shanghai Containerized Freight Index continues its decline thus indicating excess shipping capacity and lower demand for container vessels.”
Over the last two decades, China has risen to become a crucial player and contributor to the global economy.
UNCTAD notes that China’s rising importance in the global economy is not only related to its status as a manufacturer and exporter of consumer products but that the country has become the main supplier of intermediate inputs for manufacturing companies abroad.
Alternative sources for supplies
“As of today, about 20 per cent of global trade in manufacturing intermediate products originates in China (up from 4 per cent in 2002),” notes the report.
The report notes that a reduction in Chinese supply of intermediate inputs can affect the productive capacity. This means that the exports of any given country also could be affected depending on how reliant its industries are on Chinese suppliers.
Closer home, Kenyan traders have started feeling the heat from the effects of the Covid-19. The traders have been forced to seek alternative sources for supplies with Uganda becoming their port of call.
With traders in Nairobi now starting to source for goods in Uganda, the commodity prices could go up by 300%.
Stocks are expected to last for only 60 days with Kenyan consumers bearing the brunt of hiked prices. Kenyan traders rely on goods from Guangzhou, China’s wealthy manufacturing city and the looming lack of stock could take a toll on Kenyan businesses. Kenya imported goods worth Sh 390 billion from China in 2019.
With the coronavirus outbreak, African countries doing a lot of business with China now seemingly have to seek alternatives.
In 2018, China’s trade and import growth rate with Africa was the highest in the world. The General Administration of Customs of China says that the total import and export volume with Africa was US$204.19 billion.
In the same year, China’s exports to Africa were US$104.91 billion, while imports from Africa were valued at US$99.28 billion.