The number of people afflicted with the coronavirus recently passed the number of people who were afflicted with SARS during the 2002–03 outbreak. That slashed China’s GDP by two percentage points—which would be some $27 billion worth of productivity today. Moreover, the number of coronavirus patients is still growing.
We outline the possible economic impact of the coronavirus outbreak in China and will follow up with further estimates in subsequent reports.
Effect on Retailers and Brands
Several retailers in China have reduced or closed stores.
- Levi’s has closed about half of its stores.
- H&M has closed stores.
The following retailers have closed stores, according to
Business Insider:
- Gap has closed five locations.
- Old Navy has closed three locations.
Walmart says it currently plans to keep its Walmart and Sam’s Club stores open.
Other retailers and venues previously announcing temporary store closures include Disney, IKEA, LVMH, McDonald’s, Starbucks and Yum China (owners of KFC and Pizza Hut).
Mondelez (the maker of Oreo cookies) reported the coronavirus could hurt 1Q earnings. China accounts for about 4.5% of the company’s sales. Mondelez closed two factories near Wuhan for 10 days.
US Airlines Cancel Flights into and out of China
American Airlines, Delta Air Lines and United Airlines announced on January 31 that they will suspend all service to mainland China.
- American Airlines is suspending all flights to and from mainland China immediately through March 27.
- Delta will suspend service starting February 6.
- United will suspend service starting February 6 and expects to resume operations on March 28.
American and United will continue flights to Hong Kong, which Delta no longer serves.
The cessation of flights will hurt travel-related retail on both sides of the Pacific, as well as in-airport retail.
Another Delay in Hong Kong School Reopening
On January 31, the Hong Kong government announced that schools would not reopen on February 17, but would remain closed until March 2—the second time the local government has delayed the opening of school. Civil servants will be allowed to work from home until February 9.
Implications for the Electronics Supply Chain
Wuhan is a manufacturing center for the electronics and automotive industries and is home to contract manufacturers such as Foxconn (Hon Hai Precision Industry) and Pegatron, as well as flash memory makers XMC and Yangtze Memory Technologies. More than 13,500 Foxconn employees work in Wuhan. Companies based in Wuhan such as BOE, China Star and Tianma account for 9% of global flat-panel display output.
Supply chain disruptions could affect production of the Apple iPhone 11, Airpods and a new iPhone expected to be called the iPhone 9. Apple said that the reopening of its Wuhan factories had been delayed from the end of January to February 10. The company initially closed its store in Qingdao as a precaution, and subsequently closed stores in Fuzhou and Nanjing due to the closure of the malls housing them.
The Wuhan region also hosts 10 automobile and autopart factories, including those supplying BMW, Daimler-Benz, General Motors, Honda, Renault, PSA and Volkswagen. The automotive industry drives about 20% of the city’s economy, directly employs 200,000 people and indirectly employs more than 1 million.
