China’s exports, imports seen slumping as virus hits output - GulfToday

China’s exports, imports seen slumping as virus hits output


Containers are being loaded onto a ship at Nantong Port, China. Associated Press

China’s exports and imports likely tumbled in the first two months of the year, a Reuters poll showed, as the health crisis triggered by the coronavirus epidemic disrupted businesses and production and wreaked havoc along global supply chains.

Exports from the world’s second-largest economy are expected to have sunk 14% in January-February from a year earlier, according to a median estimate from the survey of 25 economists, marking the steepest fall since February 2019.

Imports likely skidded 15% from a year earlier in the same period, the biggest contraction since January 2016 and a sharp contrast from the 16.5% growth posted in December.

China’s customs said last month it would combine January and February preliminary trade data in line with how some of the country’s other major economic indicators are released early in the year, which is intended to smooth distortions created by the long Lunar New Year holidays.

This year, Beijing extended the holidays and instituted widespread transport curbs and other tough public health measures to limit the spread of the virus, which have paralysed large parts of the economy.

The forecasts underlined the crippling effects of the coronavirus epidemic across the country, which also triggered the sharpest contraction in factory activity on record, with sub-indexes for production and new export orders nosediving to levels before the global financial crisis.

Wary of the deepening economic costs, Beijing has urged less affected areas to resume work as soon as possible and rolled out a host of measures to help firms re-start operation, including cheap loans to companies hardest hit by the epidemic.

But migrant worker shortage is still acute in the coastal provinces due to the quarantine rules and travel bans. Some factories that have restarted work are running below normal capacity.

Nomura’s Business Resumption Rate (BRR), a gauge to measure the progress of business resumptions, was at only 44.0% as of March 1, a pace well below normal operating levels.

Many Chinese exporters say they faced difficulty in fulfilling overseas orders for February and months to come due to a shortage of workers and raw materials, while seaports that are operating at low efficiency also worsened the logistical problems.

Other producers also suffered suspension of purchases and cancellation of orders from foreign buyers.

The disruptions are already rippling through global supply lines from Asia all the way to the United States, and is expected to lead to weaker foreign demand and patchy global trade in the coming months.

“Even if China’s factory production can recover in March, it will still face the risk of a low level of export orders. This is because the supply chain will continue to be broken, this time in South Korea, Japan, Europe, and the US, where Covid-19 has begun to spread. Exports will, therefore, continue to be weak in 1Q20 and even into 2Q20,” said Iris Pang, Greater China economists at ING.

Analysts say the spread of flu-like disease which have infected more than 95,000 worldwide could mean a second wave of disruption to Chinese factories.

“Some factories may run into problems resuming normal production if outbreaks in other countries mean they have trouble sourcing intermediate goods,” Julian Evans-Pritchard, Senior China Economist with Capital Economics said in a note.

“China is especially reliant on neighbouring countries for electronics components, such as LCD screens and semiconductors.”

Major South Korean exporters including Hyundai Motor and Samsung Electronics have partially shut their production lines after workers tested positive, while LG Display closed a display module plant for disinfection work until Tuesday.

The widening economic fallout of the virus has prompted policymakers around the world to step up monetary support. The Federal Reserve on Tuesday delivered an emergency 50 basis point rate cut, while the Bank of Canada followed through with a similar easing a day later.

Markets widely believe the Chinese authorities will continue to move to lower financing costs for business and roll out powerful measures prop up the economy. Some central bank officials in China have recently said the People’s Bank of China should make timely adjustments to benchmark deposit rates, and pay more attention to changes in real interest rates.


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