China’s first-quarter economic growth may drop to 5% or even lower due to the Covid-19 business
Several tech giants have shut their operations in the country temporarily
Coronavirus has reportedly killed over 1381 people in China
With the world’s factory — China — on a near-complete shutdown due to the recent coronavirus (officially named Covid-19) outbreak, business and trade have been impacted severely. Crude oil prices are falling due to low demand, businesses are shut, the workforce is limited and the automobile and tech industry are running out of components to use in cars and smart devices.
As the world’s second-largest economy comes to a standstill, businesses around the world have started rethinking the short and long term impact.
According to Coronavirus COVID-19 Global Cases by Johns Hopkins CSSE, the website showed 64,437 confirmed cases of people affected by this deadly virus. The number has been growing alarmingly. Since its outbreak in January 2020, the Covid-19 has spread to more than 25 countries including India, Japan, Philippines, US and others. The human cost is undoubtedly high and saddening, but the Chinese shutdown has also been affecting businesses across the world.
China has been rightly named the world’s factory because of the business and manufacturing ecosystem. Lower wages, an undervalued currency, lower compliance threshold and aggressive growth forced through market conditions have made China the darling of the technology world.
The Covid-19 disease began in Wuhan city in China with a population of 11 Mn. Wuhan is a hub for both tech and non-tech businesses and international corporations. Since the Covid-19 outbreak, all operations in China have been halted with only critical services being kept operational. Here’s a look at the widespread impact across the global economy.
Workforce Cripple Over Virus Fears
As nearly the entire country stands shut, there is not much going on in day-to-day life as well. Chinese ecommerce giant Club Factory CEO Vincent Lou told Inc42 that restaurants, cinemas and travel agencies have seen the biggest impact when it comes to non-tech businesses. Several countries have issued advisories, restricting their citizens to travel to China and even travel from China’s are limited. Various countries, including India, are conducting evacuation drives from China.
Moreover, the Chinese government had extended the Lunar New Year holiday by 10 days in order to contain the Covid-19 outbreak. The holiday was officially supposed to end on February 10, 2020.
However, with the virus aggressively spreading and death toll on a rise, the Chinese market remains shut for most companies — local or international. A few companies including WeChat’s parent company have extended the holiday until February 17, 2020.
Finding a way around the situation, many companies have asked the employees to work from home. Meanwhile, the Chinese government recently issued a notice encouraging companies to summon their employees in staggered batches.
Indian hotel and hospitality business OYO, which also has operations in China, has asked employees to work-from-home until February 16, 2020. Moreover, it has encouraged its employees to “reduce travel, limit any work-related trips and prioritize their well-being,” founder Ritesh Agarwal said.
Moreover, the company is not against the idea of temporarily closing down some of its hotels in China to ensure the safety of hotel partners, staff and guests. On the same lines, major fast-food chains such as McDonald’s, Pizza Hut and KFC have temporarily closed down branches in parts of China.
Tech giants Apple, Google, Microsoft, Samsung and Tesla have all shut down offices in China, with many also shuttering offices in Taiwan and Hong Kong temporarily.
With companies temporarily pulling the plug on their businesses, a Chinese government economist told a local magazine that the country’s first-quarter economic growth may drop to 5% or even lower due to the virus outbreak. In the fourth quarter of 2019, China’s growth had already noted a 30-year-low rate of 6%.
Auto Industry Running Out Of Parts
The biggest impact of the Covid-19 outbreak has been on the auto industry across the world, and for electric vehicle makers. China is a major supplier of automobile components to manufacturers and retail stores around the world. As per data compiled by the United Nations, China shipped automobile parts and components worth $35 Bn in 2018. Of this, parts worth $20 Bn were exported to the US alone.
The lack of components has also been aggravated by travel restrictions and labour shortage in the country. German automobile maker Volkswagen and US-based General Motors have shut down their factories in China temporarily.
Meanwhile, Hyundai’s assembly plant and Renault’s plants in South Korea have stopped production as well due to lack of Chinese parts coming in. Similarly, Nissan’s plants in Japan are currently undergoing “product adjustments” due to a shortage of Chinese parts. Even Fiat Chrysler has confirmed that the company is at risk of running out of parts in the next two to four weeks.
The Indian EV industry, which is still at a nascent stage, has also been impacted by the Covid-19 outbreak. Indian EV manufacturers and battery makers majorly rely on China to import EV parts. China is the biggest source of affordable batteries for EV companies, besides South Korea. However, companies such as mobility startup Yulu have initiated talks with other vendors to mitigate the impact. While Yulu does not have any employees in China, the company told Inc42 that it is in touch with partners to keep an ear to the ground in this regard.
Among the major companies in India, automobile giant Mahindra and Mahindra’s managing director, Pawan Goenka, has said that the company’s production might be adversely hit due to component shortage. He added, “For Mahindra, there are some Tier 2 parts that come from China, which right now is a supply constraint for us, We have some concern if supply does not restart next week.”
Meanwhile, automakers have kept a close eye on the markets. Simplifying the current situation in the automobile industry, former head of General Motors’ operations in Indonesia, Mike Dunne, told CNN that a car can’t be built with 99% parts, one missing piece is enough to stop the production.
Kristin Dziczek, vice president of the Michigan-based think tank Center for Automotive Research, said that if the Chinese productions are not on track this week, the automobile work can expect a “cascading” impact by the end of February.
Tech Companies Join Aid Efforts
Amid this massive disruption, Chinese multinational conglomerate Alibaba Group has launched a global B2B sourcing platform for medical goods, especially to tackle the Covid-19 outbreak. The platform will connect medical goods suppliers of all sizes with medical personnel, who are currently trying to contain the situation.
“The Alibaba Global Direct Sourcing Platform will allow Alibaba Group to leverage its digital technology and expertise to transparently and efficiently put to use a RMB1 billion fund that was established on January 25, two days after the city of Wuhan – at the epicenter of the outbreak – was quarantined,” the company said.
Alibaba will post the specifications of the medical supplies required needed medical supplies, based on information collected from hospitals and local authorities. The suppliers will then have to confirm the products they can offer. Once Alibaba has verified the supplier, the company will handle the procurement process and deliver the goods to the hospitals, based on urgency and priority.
On the other hand, OYO has set up a dedicated fund of over 1 Mn RMB to support the impact employees and their families. The employees just have to report to any personal or family-health related concerns to managers to avail benefits. Moreover, the hotel and hospitality business will also monitor the health of its staff members who frequently visit public places.