Coronavirus: China’s trade economy slowly coming back to life, but US$190 billion export hit expected

Finbarr Bermingham

China’s trade economy is slowly coming back to life, but the coronavirus outbreak has already inflicted huge and lasting damage to global trade.

A series of metrics showed that this week, China made significant progress in kick-starting its imports and exports, with seaborne freight levels in particular returning to close to what they were before the crisis put large swathes of China’s economy on lockdown.

Data from Cargometrics, which tracks every vessel on the planet, showed that seaborne imports to China surpassed their pre-Lunar New Year levels and the average daily tonnage of between 2012 and 2019 on seven recent days. Seaborne export cargo have been rebounding more slowly, but came close to matching pre-Lunar New levels on one occasion.

And while these indicators may be welcomed as signs things are starting to return to normal, others provide fewer reasons to be cheerful.

Insurance company Euler Hermes suggested that US$320 billion will be trimmed from global trade per quarter due to business disruptions stemming from the coronavirus.

“[This means the virus is] comparable to the annual impact of the US-China trade dispute on world tariffs in 2019,” according to Euler Hermes.

In particular, China will lose US$108 billion in the exports of goods, US$72 billion in travel and US$10 billion in transport services, bringing the total damage to its exports to US$190 billion. Italy will lose US$21 billion, while the rest of Europe US$108 billion. China's total exports in December were US$238.3 billion.

By way of comparison, China's exports actually grew strongly throughout 2003 during severe acute respiratory syndrome (Sars), which happened just two years after the country joined the World Trade Organisation, in the midst of a spectacular economic boom. Sars trimmed 1.05 per cent from China's gross domestic product, with its economy now four times larger than it was in 2003.

And while more factories in China have reopened this week, only 45 per cent of small businesses had reopened as of Monday, according to the Ministry of Industry and Information Technology.

The Port of Los Angeles – the gateway to US-China trade – has forecast a 25 per cent decline in container volumes in March.

Daily container traffic at US ports from China, meanwhile, fell from 32,550 on February 4 to just 2,784 on February 26, according to data from trade research firm Ocean Audit.

“Coronavirus caused a shut down of the majority of flight schedules into and out of China, drastically reducing belly capacity available to lift cargo out of Asia. In real terms, Asia-Pacific belly freight capacity is down 85 per cent year-on-year as of February 25, forcing cargo onto the freighter fleet which has expanded by only 4 per cent year-on-year,” said Peter Stallion of airfreight derivatives broker Freight Investor Services.

He added that on the TAC Index, which tracks cargo freight prices, spot prices for cargo leaving Shanghai for the US are up 19.7 per cent.

“Highly unusual price movement has been for cargo moving into China, a large volume of relief charters has been followed by a large volume of resupply charters and urgent shipments for everything Chinese industry needs quickly. A good reference is the TAC Index Frankfurt to Shanghai lane, which exploded from February 10 to 17 increasing 199 per cent in one week,” Stallion said.

Official Chinese government data this week confirmed the devastation caused to manufacturing by the virus. The manufacturing purchasing managers’ index plunged to an all-time low of 35.7 in February, and within that the export order sub-index dropped to 28.7 from 48.7 in January, while manufacturing production nosedived to 27.8 in February from January’s 51.3.

“Container ship visits to Chinese ports, measured both in number of vessels scheduled to call and their cumulative capacity in twenty-foot-equivalent units (TEU) plunged in late-January and early February. At the same time, the ratio of missed port calls (i.e. scheduled vessel calls that do not occur) has risen sharply to levels usually seen in late-February and March,” wrote Abudi Zein in a report for the United Nations Conference on Trade and Development.

Analysts are also closely watching the coronavirus’ impact on the South Korean economy, given its vitality for industries such as cars, ships and electronics.

“In South Korea, Resilience360 data shows that approximately 82 per cent of manufacturing, supplier and logistics locations within Daegu belong to the automotive industry. Other affected industries in the country include hi-end electronics and semiconductor manufacturers. Any prolonged shutdown can therefore have a major impact on the production and assembly of electronic goods in China, which sources mainly from South Korea and Japan,” read a report by Resilience360, an arm of logistics giant DHL.

South Korean exports to and imports from China fell by 22 per cent and 35 per cent year-on-year respectively in the first 20 days of February.

On Saturday, China will release its trade data for the months of January and February, with analysts predicting double-digit declines.

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