Coronavirus provides ‘critical test’ of southeast Asia’s ability to reduce dependency on China

The coronavirus outbreak provides a critical test of the southeast Asia region’s ability to diversify global supply chains and reduce its dependency on China, according to Sofia Nazayla, analyst at Maplecroft, a UK-based global risk and strategic consulting firm. This ‘black swan’ event has already had a global economic impact that will inevitably intensify. But leading southeast Asian economies such as Singapore, Thailand, Vietnam and Malaysia are particularly exposed to the virus’s impact because of their reliance on Chinese supply chains, particularly in the textile, automotive, logistics, electronics, chemical and textile industries, concluded the Singapore-based analyst. “The outbreak is a critical test of the region’s ability to diversify global supply chains and reduce dependency on China. Given that China is a major trading partner in southeast Asia, stakes are high and the economic fallout in the region will likely see GDP growth across the region decline in the first quarter,” said Ms Nazayla. “Southeast Asia faces the greatest knock-on effects, given its supply chain exposure to China. Tourism is the hardest-hit sector, with most countries now imposing travel bans on Chinese nationals. We expect significant operational delays and the cancellation of high-density events across the region,” she noted. The World Health Organization’s (WHO) latest update, published on 10 February, said there are now 40,554 confirmed cases with 3,085 newly reported since its previous report the day before. China has 40,235 confirmed with 3,073 new. Some 6,484 cases are categorised as severe. There have now been 909 deaths in China, with 97 new deaths since the previous report. Outside of China there are now 319 confirmed cases with 12 new since 9 February, spread across 24 countries. There is thankfully still only one death reported outside of China from the virus. Maplecroft noted that Singapore and Thailand have recorded the highest number of infections in southeast Asia, followed by Malaysia, Vietnam, the Philippines and Cambodia. No cases of coronavirus have so far been reported in Indonesia. All of these countries, except for Thailand, have imposed travel restrictions on Chinese nationals. “As we outlined in our earlier analysis, we expect that the fallout from this outbreak will be greater than that of SARS due to China’s current position as the world’s second-largest economy and its shift from the ‘world’s factory’ to a service-driven economy,” noted Ms Nazayla. “Commodity prices have also taken a hit, impacting rubber, coal and palm oil, among others. Indonesia, whose foreign exchange earnings are highly dependent on the export of all three commodities, will likely widen its already substantial trade deficit. The country recorded a $3.2bn trade deficit in 2019,” added the analyst. For now, the greatest direct economic impact on the region, however, will be in the dwindling of tourist arrivals from China. Notably, Thailand, where Chinese tourism accounts for a quarter of the total tourism spend, is the only country that has not imposed a blanket travel ban on Chinese nationals. Looking ahead, Ms Nazatla pointed out that, while multinational firms have temporarily suspended operations in factories and stores in China, it is unlikely that the same will happen in southeast Asia, given that the situation remains contained and current infection rates remain stable. “Nevertheless, high-density events are likely to see more cancellations, such as business conferences, exhibitions and sporting and entertainment events,” she noted, as a number of leading events have already been cancelled and fears are being expressed already about the Olympics in Tokyo this summer. “As companies take more precautions to ensure occupational health and safety, this is expected to cause operational delays that are likely to have ripple effects. For example, the lack of crew availability due to health inspections and quarantine checks of returning Chinese workers in the Singapore port from the Lunar New Year holiday has had knock-on impacts on the global commodities shipping industry,” added the analyst. “While there is currently no consensus on how long the outbreak is expected to last, the first instances of local transmissions in the region make it likely that there will be a steady increase in cases in the next few weeks,” continued Ms Nazayla. Scientific studies have worryingly warned that the coronavirus could be spreading undetected in Thailand and Indonesia. If new cases emerge in both countries in the following days, the capacity of both public health systems will be severely tested, she said. “Singapore’s ability to limit the economic and social impacts of the outbreak will be a decisive factor in the timing of this year’s national elections. Our earlier forecast predicted a 67% chance of a general election called by the end of June 2020, however in the unlikely event of failure to adequately contain the spread of the virus, the government would likely delay elections to the second half of the year,” said Ms Nazayla. “The Singaporean government has already announced a relief package to companies and citizens, which will be revealed in the budget announcement on 18 February. This will prove to be an important litmus test for the government to further secure public trust, especially in the face of the current economic slowdown,” she added. On 11-12 February, the WHO is convening a global research and innovation forum under its WHO R&D Blueprint strategy and preparedness plan, to mobilise international action and enable identification of key knowledge gaps and research priorities to contribute to the control of the virus. The forum will include members of the scientific community, researchers from member states’ public health agencies, regulatory experts, bioethicists with expertise in research in emergencies, and major funders of research related to 2019- nCoV, explained the WHO.

Coronavirus provides ‘critical test’ of southeast Asia’s ability to reduce dependency on China

Want to read this article?

Read Next

Marsh tracks slowdown in global Q1 rate hikes

Markel names head of terrorism in London

Insurers defend Nord Stream’s €400m lawsuit as act of war

Allstate posts nat cat loss of $343m for March

UAE flash flood losses manageable as insurers adapt to changing weather

Marsh tracks slowdown in global Q1 rate hikes

Markel names head of terrorism in London

Insurers defend Nord Stream’s €400m lawsuit as act of war

Allstate posts nat cat loss of $343m for March

UAE flash flood losses manageable as insurers adapt to changing weather

Want to read this article?

Read Next

Marsh tracks slowdown in global Q1 rate hikes

Markel names head of terrorism in London

Insurers defend Nord Stream’s €400m lawsuit as act of war

Allstate posts nat cat loss of $343m for March

UAE flash flood losses manageable as insurers adapt to changing weather

Related Articles