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The major global losses due to the heavy dependence on China

The major global losses due to the heavy dependence on China

Wednesday 12, 02 2020
The prolonged delay in the Chinese supply chain will heavily damage the global economy, which still has not recovered after a year of commercial instabilities, including the America-China tax conflict

The Corona virus reveals the weaknesses of the global supply chain

As many Chinese companies still have not returned to operation on 10th February due to the widespread of nCoV, the pressure on manufacturing and commercial activities of nations depended on the huge supply chain of this country is being increased. China's share of global trade today is much greater than the time when the SARS epidemic (which caused severe acute respiratory distress syndrome) broke out in 2003.

A study conducted by the Nikkei Media Corporation and the Japan Economic Research Center shows that for every 10 billion US dollars of industrial output in China declining due to production disruptions, the Chinese goods exporting to South Korea will reduce by nearly 300 million dollars, leading to the total export value goods of Korea decreasing by about 200 million dollars.

Thus, this double loss will cost Korea 500 million dollars. Other economies that rely heavily on supply chains in China, such as Japan, the United States, France, Germany, the United Kingdom, India, and Taiwan, will also suffer from similar losses.

According to the study, the total losses of all countries and regions around the globe due to the decline of $ 10 billion in the value of industrial output in China will amount to $ 6.7 billion.

The impact of the epidemic on production and supply chains of Korean, Japanese, American, Taiwanese companies ... has been evident in recent days. Last weekend, South Korea's largest automaker Hyundai announced that it would stop all domestic assembly lines due to a shortage of parts from China.

Hyundai said it would gradually resume production operations between 11th and 17th February. Kia Motors, meanwhile, said it had stopped most manufacturing operations at three factories in South Korea.

Japanese automakers such as Toyota, Honda, and Nissan have not yet been able to resume production activities at their factories in China.

A survey of Nikkei with 124 Japanese companies operating in China shows that up to 108 companies (87.1%) said their operations were partially or completely suspended due to the impact of the nCoV epidemic. Only 43.8% of the companies that responded to the survey said they had resumed operation on February 10.

The major global losses due to the heavy dependence on China

Meanwhile, Foxconn (Taiwan), an important outsourcing manufacturer of Apple and many other US technology companies, has not been able to reopen most factories in China.

China is a leading trading partner of many countries around the globe. The International Trade Center in Geneva, Switzerland, estimates that the country's current contribution to global trade is about 12%, surpassing that of the United States. In 2003, this figure was nearly 6%.

Previously, Japan relied so heavily on trade with the United States that experts once compared: when the US sneezed, Japan would have a runny nose. But now this dependency is tilting toward China. The value of Japan's trade with the world's second-largest economy has risen to 22% of the total trade, higher than the 15% level with the US.

Therefore, if China's economic growth is seriously damaged by the impact of the nCoV epidemic, almost every other country in the world will suffer.

The nCoV epidemic is a lesson about supply chain diversification

After a year of "bruises" because of the impact of the US-China trade war, Singapore is facing the threat of the nCoV epidemic. This is where 43 cases of infection occur and the economy depends heavily on trade with the outside, especially with China. So the country may have to suffer from this dependency.

In a report published last week, economists at Maybank Kim Eng Securities downgraded Singapore's GDP growth forecast for this year to 1.1% from the previous forecast of 1.8%.

Explaining the reason for lowering the forecast, they said that the decision to restrict the entry of Chinese tourists, made by the Singapore government in early February, would affect the tourism, hotel and retail industries of this country.

Economists at OCBC Bank said that if the nCoV epidemic lasted for 3-6 months, Singapore's GDP would lose from 0.5 to 1 percentage point due to travel restrictions, consumers’ confidence, businesses decline, and weakened production activities.

According to another previous report by Maybank Kim Eng, in Southeast Asia, Singapore and Thailand are the two countries most affected. Malaysia and Vietnam are also affected but not as serious. Meanwhile, Indonesia and the Philippines are the least affected.

Talking to CNBC news on February 4, Singapore's Minister of Industry and Trade Chan Chun Sing, said that the nCoV epidemic was causing many large industrial and commercial production centers to close in China, teaching companies and economies around the globe “a great lesson” on the importance of supply chain diversification.

​Minister Chan Chun Sing said, “Nowadays, China is involved in the supply chains of many high-end products. This means that the impact of the nCoV epidemic on global supply chains will be enormous. I think this is a lesson for people to seriously consider the sustainability of the supply chain. ”

>> SSI forecasts 9 industries negatively affected by the Corona epidemic

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