New Delhi: The Coronavirus (Covid-19), which has created havoc in Wuhan, China, is not only spreading to other parts of China, but is gradually spreading to other countries as well. To prevent the spread of the virus, the Chinese government has cordoned 16 cities to date. It has also restricted human movement into the high-rise apartment complexes of these cities. All are subject to compulsory medical examinations and other restrictions.
Corona restrictions have prevented more than seven million workers from returning from their homes after celebrating China's New Year. As a result, manufacturing activity in factories in Henan, Hubei, Zhejiang, Guangdong, etc., is suffering. Henan province has the largest iPhone (Apple) factory in the world. Wuhan, the state capital of Hubei, has factories set up by Japanese automakers Honda and Nissan and several European auto companies. Germany's Volkswagen Group has ordered 3,500 of its workers in Beijing to work from home without going to the factory for two weeks. German-based BMW, US-based Tesla, Britain's Jaguar and Land Rover have also announced that their car manufacturing operations in China have been disrupted.
Supply chains disrupted
China has many factories that manufacture cars, electronics and industrial equipment for various countries. Most of them were set up by developed countries such as the US, Germany, Japan and France. Today, no item is completely made in a single country. Its spare parts are manufactured at different places. They are assembled and exported to many countries. For example, if the cameras of smartphones are produced in one country, display screens are made in another country. This is called the international supply chain. Taiwan, South Korea, Vietnam, Bangladesh and Malaysia are key components of this supply chain.
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However, these chains have adversely been affected due to Corona. As a result, exports and imports between China and other countries are disrupted. For example, clothing and refined food products are exported from China to Japan. They are now in a problematic situation. Hyundai Motor Company had to close some of its units in South Korea due to lack of supplies of wiring harnesses from China. People in many Asian countries are curtailing their visits to public bazaars, shopping malls and restaurants for the fear of contracting Corona if they move to populated areas. This is affecting the retail market.
The tourism industry is also in decline due to the Chinese government banning tours due to the virus. Further, many countries are also refusing entry to Chinese tourists. This will significantly reduce tourism revenues for Vietnam, Thailand and Singapore. Singapore will lose 10 million Chinese tourists due to the attack. Business hubs like Hong Kong and Macau will also incur great losses. The share of travel services in Thailand's GDP is 11.2 per cent, while for Hong Kong it is 9.4 per cent.
Since the arrival of Chinese tourists to India and Indonesia is low, the impact on tourism will not be as high in these countries. On the other hand, airlines in many countries, including British Airways, Lufthansa and Air India, have either stopped or reduced travel to China. Japan is concerned that the disruption to tourism and aviation will adversely affect the Summer Olympics that are scheduled to be held in Tokyo from July 24.
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China is a major hub for manufacturing cars, industrial machinery, equipment, pharma, home appliances, computers, smartphones and other high-tech goods and their spare parts. Due to Corona effect, its car production may be down by 15 per cent in the first quarter of 2020. Bosch, maker of car spare parts, Magna International and electronics manufacturer Nvidia also are likely to reduce their production. Corona is becoming a scourge to the world which is already suffering from depression. The virus could pull down the world's GDP, along with China. Orders for Germany, which exports heavy machinery to China, are likely to go down.
Encouraging Opportunities
It is partly because of the reduced supply of goods from China that countries may start relying on India for certain goods. India has the potential to export ceramics, home appliances, fashion, lifestyle goods, clothing, small-scale engineering and furniture. Already, western companies are in touch with India. Large orders have come in for masks for protection against Coronavirus. Initially, India was apprehensive that if all the masks are exported, the nation itself may face shortage in view of its own requirements, and stopped exports. However, the demand was so high that the Indian manufacturers were unable to meet the new orders. India has to work hard with a long-term plan to become a big producer like China.
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Today, China imports 10.4 per cent of the world's goods. China's share of imports in 2002 was just four per cent. That is why the loss due to the coronavirus outbreak is far greater than that caused by the 2003 Sars virus. China is more crucial to the global economy today compared to 2003. China accounts for 15 per cent of the world's GDP. Any reduction to this would have its negative impact on global GDP. China is India's largest trading partner. In 2018-19, India's total imports from China were 14 per cent. India's exports to China during the same period were five per cent. If the Corona problem persists, exports and imports will decline. Spare parts production in China has been disrupted and suppliers there have raised prices. This will increase inflation in India, reduce production and will lead to a cut in jobs. At a time when the world's countries are economically interdependent, the Corona crisis can be overcome only with mutual cooperation.
Unavoidable difficulties for India
India, which imported and stocked some raw materials and spare parts from China could avoid the short-term ill effects but cannot avoid disadvantages in the future. India mainly imports electronics, engineering goods and chemicals from China. Due to disrupted imports, Indian corporate growth is likely to slow in 2020-21. If the virus outbreak is not contained within three or four months, Indian companies cannot escape difficult times.
India expects a 6.5 per cent growth rate in the next fiscal year. If coronavirus is not brought under control within six months, India's growth prospects will be difficult to achieve. Mahindra and Mahindra, and Maruti cars manufacturing may slow down due to disruption of imports of spare parts from China. With 60 per cent of auto assembly plants in China currently shut down due to Corona fear, it will take some time for us to import spare parts from other countries. India imports 10 to 30 per cent of automotive equipment from China. We rely on China for batteries and other spare parts for the production of electric vehicles. Fitch has warned that the Indian automobile industry could decline by more than eight per cent under the influence of Corona.
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The impact on diamonds, leather goods and pharmaceuticals manufacturing is going to be severe. Soles for footwear must come from China. If supply of solar panels from China slows down, India will lag behind in the production of solar power. Spare parts for air conditioners, washing machines, TVs and smartphones are imported from China. Prices of these items may rise due to short supply of the spare parts. Xiaomi is already considering hiking the price of its smartphones. On the other hand, raw materials required for pharmaceutical bulk drugs and APIs, are imported from China. Their supply from China is being affected due to the virus outbreak. In this situation, the production of drugs is hampered and price-rise seems inevitable. The prices of raw materials, such as paracetamol, have already doubled in just ten days. India should consider the Corona crisis as a wake-up call and create vast infrastructure for the production of bulk drugs, APIs and medical equipment on its own soil.
