TOKYO, Jan. 28, 2020—The Wuhan, China coronavirus pandemic is set to threaten the global supply chain, Japan’s Nikkei newspaper reported in its front page Jan. 28. The threat would become real, it said, in response to the Chinese government’s order to extend the Chinese New Year holiday season for several days until almost mid-February.
WHAT’S NEXT: In the immediate future, led by the United States, which historically keeps limited inventory of consumer and industrial goods, supply chain destination economies of Europe and Asia should experience excruciating shortages and non-delivery of parts and components from their Chinese manufacturing plants.
Since the pandemic is forecast by western scientists to peak around April to May, tight supply and delivery conditions are set to be prolonged for weeks to come, during which time manufacturing of electronic, machinery and a wide swath of industrial and consumer products would be destined to remain sluggish. That could mean price rises. That the gold price is going through the roof daily now while the U.S. dollar is slipping against key currencies may be testimony to inflationary pressure resulting from coronavirus.
WHERE CHINA STANDS: The Wuhan coronavirus epidemic may be far less threatening than Ebola, SARS and MERs. A big difference is that while the three past epidemic threats were swirling around the world, China had not been the global manufacturing factory – yet. Now China is, churning out every conceivable industrial and consumer products – parts for iPhones, PCs, toys, steel, plastics, and so on – and exporting them the world over.
LOOKING BEYOND: In responses to Trump’s U.S.-China trade war, U.S., European and Japanese manufacturers had developed second thoughts about concentrating mid-stream operations in China alone, as illustrated by shifts of Uniqlo and other light product makers to Vietnam and other Asian economies. The virus scare is set to encourage this shift further away from China.
WHAT’S IN THE FUTURE: China is in the midst of an industrial revolution to morph into a hitech, eco-friendly country from low tech, heavy manufacturers. Epitomized by its successful transition into a cashless, EV transport modern society that would be powered by 5G internet networks, Chinese leader Xi Jinping may be confident that China can ride out the current scare. Can he?
–Toshio Aritake