As new cases of coronavirus continue to pop up and with the recent knowledge that almost 5 million residents left Wuhan before the lockdown, it is becoming clear that more and more businesses will be affected by the illness.
In the last several decades, globalization has made it necessary for many companies to build supply chains that cut across national borders, making economies much more interconnected. China, the world's second largest economy, is at the heart of many such supply chains.
Already, the coronavirus, recently dubbed COVID-19 is making it more difficult for companies to source parts. Auto parts shortages have forced Hyundai to close plants in South Korea and caused Fiat Chrysler to make contingency plans to avoid the same result at one of its plants in Europe. And in the UK, Jaguar Land Rover has warned it could run out of car parts at its British factories at the end of next week due to lack of supplies from China.
Qualcomm, the world's biggest maker of smartphone chips, warned that the outbreak was causing "significant" uncertainty around demand for smartphones, and the supplies needed to produce them.
This week, Apple warned that it expects to fall short of revenue goals in the current quarter because of the coronavirus outbreak, underscoring the far-reaching effects of the public health crisis on the global economy. Apple has a huge dependency on China for its workforce and its network of component manufacturers to meet the demand of the world's most popular gadget, the iPhone. But with the advent of COVID-19, that dependency on China is a risk, since Apple does not rely on supply chain diversification.
Google has closed down its stores and corporate offices in mainland China, and gaming giant Nintendo has said the coronavirus would impact the production of its popular Switch gaming console. Analysts expect the global economy to shrink this quarter for the first time since 2009 as a consequence of the outbreak.
A recent study published by commercial data firm Dun & Bradstreet (D&B) indicates the ongoing coronavirus outbreak in China could dramatically impact the global supply chain, affecting 5 million companies worldwide. The D&B report looked at nineteen Chinese provinces with 100 or more cases of COVID-19 and analyzed their influence on the global economy. Five of the Chinese provinces in the impacted area – Guangdong, Jiangsu, Zhejiang, Beijing, and Shandong – make up 50 percent of total Chinese employment and 48 percent of total sales volume in the country. By allocating the suppliers/manufacturers in the impacted region into tiers, the D&B report found that around 51,000 global companies have "tier 1" suppliers in the impacted region, while at least 5 million companies have "tier 2" suppliers in the area. A tier 1 supplier is a manufacturer providing goods without using a middleman, while a tier 2 supplier is a company providing a product to the tier 1 firm as part of a larger supply chain.
COVID-19 has, to date, sickened more than 73,000 people and killed at least 2,000. While the vast majority of cases occurred in central China, the virus has now impacted people in at least twenty-five countries.
As many Chinese finally go back to work after their longest Lunar New Year holiday ever, the economic fallout from the outbreak of a new coronavirus that began in Wuhan may be just beginning. Companies are warning their bottom lines will take a hit, and governments are ramping up stimulus measures for economies that just weeks ago were hoping to see recovery after months of uncertainty due to trade tensions and slowing global growth.
Even as workers return from the holiday and some business operations resume after quarantines are lifted, there remain concerns that business production will ultimately come to a standstill due to worker illnesses and quarantines.
In response, the province of Hainan in southern China has launched the first specially-designed insurance product in the country to cover losses incurred by businesses as a result of the coronavirus outbreak, setting aside 200 million yuan ($28.7 million) to cover payouts. This information was released in a notice by the China Banking and Insurance Regulatory Commission on Sunday, February 16. The Hainan government will subsidize 70 percent of the premium for the 100 key businesses (not named in the notice) designated eligible to take this insurance. The six-month insurance, co-launched by twelve leading insurers including PICC, China Pacific Insurance Co., and Ping An Insurance Group, provides cover for production losses, wages paid to employees in quarantine and fees incurred due to the suspension of operations as a result of the epidemic.
The notice cited lingering concerns that the resumption of business operations will lead to more cases of coronavirus infection, and will cause production to come to a standstill due to the quarantine policies. The notice stated that insurance will play its role of 'social stabilizer' and help companies to come through difficult times.
China has grounded flights, cordoned off cities and suspended transport links over the past three weeks in a national effort to slow down the spread of COVID-19, yet many factories are still unable to re-open, thus disrupting supply chains in China and beyond for everyone from smartphone makers to car manufacturers.
With mounting pressures on the economy, regulators have injected funds into the financial system to shore up market confidence, and have also begun speeding up the approval and launch of cheap life insurance products.