Analysts have voiced concerns that China’ Japan, and South Korea are at risk of a second wave of disruptions to their supply chains due to the ongoing impact of the COVID-19 coronavirus, which has already caused major slowdowns in global trade and economy. The three Asian nations contribute about 24 percent of the entire world’s economy with a combined yearly trading volume of over US$720 billion.
All three nations have been hit hard by the coronavirus. It has resulted in grounded flights and has restricted the flow of people between the three countries, while also causing disruptions to the integrated industrial supply chains across the region. The electronics and automotive industries in particular have been hit quite hard.
“If the epidemic spreads in Japan and South Korea, it will bring a second blow to the global industrial chain and impact downstream companies in China,” said Song Xuetao, an economist at Tianfeng Securities.
As of late, China has been attempting to boost trade and investment with its Asian neighbours as risks of deteriorating relations with the United States increased. In 2019, Japan was Chinas third largest trade partner with annual bilateral imports and exports valued at US$315.03 billion, with South Korea sixth at US$284.58 billion, according to Chinese customs data.
Analysts from Guotai Junan Securities have said that the supply chains linked to cars, machinery, optical electronic equipment, and chemical products could suffer short-term shocks if the COVID-19 outbreak spreads further in Japan. China’s reliance on Japan for semiconductor materials, industrial robots, engine parts, and related goods could also pose a problem for the nation.
“The industries that face potential risks from the epidemic in Japan overlap with some of those influenced by domestic outbreaks in badly infected provinces in China,” Guotai Junan Securities said.
Similar situations can be found throughout South Korea. The nation is a key trade partner that provides China with electronics, steel, automotive and shipbuilding materials, and electrical equipment. With South Korea already being one of the worst affected nations outside of China, any further spread of the epidemic will likely lead to more reduced production or even shut down.
Already, companies such as Samsung Electronics and LG Electronics had to temporarily shut down factories and research centres due to staff or their families being infected with COVID-19. Factory shutdowns in China and South Korea have also resulted in a significant decline in shipping movements, with 46 per cent of scheduled shipments between Asia and northern Europe cancelled, according to ocean freight data firm Alphaliner.
“Disrupted flows of essential items may cause a shock in European and American supply chains. In addition, less incoming goods from Asia will also mean fewer intra-European re-exports from the coastal regions to inland European countries,” said Timme Spakman, an economist at ING.
Chinese analysts have also stated that the disruptions could possibly hold an opportunity for domestic parts and component makers as demand for manufactured products may skyrocket soon. However, it will be no easy task to meet the gargantuan demands of China’s industry, especially with the lack of imported raw materials as well as the ongoing quarantine measures taking place in China.