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BRACING THE ECONOMIC FALLOUT OF CORONAVIRUS

  • China today is a bigger contributor to global growth than the US, Europe and Japan added together.
  • It is a given that the lockdown in Hubei province will have a significant impact on the $13.6 trillion Chinese economy that is today the fulcrum around which global trade growth turns
  • The beleaguered Chinese banking system is also likely to take a hit, which will affect credit
  • The real impact will start showing only later in the year as consumption slows down.
  • In a worst-case scenario, if the virus cannot be contained by the end of 2020, China’s gross domestic product (GDP) rate of growth could fall below 4.5%.
  • Of the $87 billion of India-China bilateral trade, a vast majority is imports into India largely in the form of goods related to capital equipment, machinery and electricals, as well as intermediate and consumer goods such as smartphones where Chinese companies account for more than half of India’s vast growing market.
  • Crucially, Chinese imports are powering India’s pharma industry and the vast solar power revolution underway.
  • Given India’s ambitious target of upping solar generation capacity to 100 gigawatts by 2022, that would be a serious setback.
  • Blazing red signs are flashing in pharma, too. With about 85% of active pharmaceutical ingredients used by Indian pharma companies coming from China, the sector’s exposure to a disruption of raw material supplies is painfully evident now.
  • The physical threat of the virus in India seems to have been contained and the government is confident of handling the outbreak.
  • However, a huge difference between managing the health aspect of the virus and handling the economic fallout of a massive dislocation of global trade.
    The Chinese economy is now a much larger part of the global economy than ever before, and India, too, is integrated into global supply chains in a way that makes the splendid isolation of the past impossible.
  • According to DHL Resilience360, a supply chain risk management software platform that helps businesses predict, assess and mitigate the risk of supply chain disruptions, China’s worst affected provinces and cities are considered vital to global technology, apart from the auto, energy, chemicals and pharma industries.
February 2023
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