The coronavirus outbreak is already having a damaging economic and business impact, affecting everything from tourism to the supply of parts to the automotive and technology industries. Stock markets have been volatile and China’s economy – which makes up one-sixth of the global economy – is expected to slow. The impact so far includes:
Supply chain
Airbus has stopped its production line in Tianjin as travel restrictions imposed by Beijing take their toll. The plant builds about six A320 aircrafts per month, so its closure will affect the manufacturer’s jet output. Other manufacturers to have halted production in China include Toyota, General Motors and Volkswagen.
The impact on manufacturing output is not confined to China. The South Korean carmaker Hyundai has halted production lines because of disruption to the supply chain of parts that usually flow between the two countries. The Japanese economy minister, Yasutoshi Nishimura, said factory production and company profits could take a hit from the virus. Honda has three plants in Wuhan, the city at the centre of the epidemic.
GSK, one of Britain’s largest drugmakers, said its medicine packaging facility in Tianjin, which employs about 100 people, remained closed after the extended lunar new year holiday. The company has 3,000 employees across China, many of whom are working from home.
Apple, which has suppliers in Wuhan, said the reopening of some suppliers’ factories had been postponed from the end of January to mid-February. Its chief Chinese supplier, Foxconn, is reported to have halted almost all of its Chinese production.
Chinese market
Global brands that count on the Chinese market for a sizeable chunk of sales are braced for a significant hit.
Nike has closed about half its stores and is reducing hours in the remainder as shoppers desert the streets. China accounts for about 17% of its revenues in normal years. Adidas said it has closed a “considerable” number of its outlets, while H&M said store closures in China – about 45 – hurt sales in January. Gap and Hugo Boss have closed stores or shortened hours.
Disney has said operating income could take a hit of $280m (£216m) after it was forced to close two theme parks that are usually busy over the lunar new year period.
Ikea has closed all of its 30 stores in China, while McDonalds shut about 300 restaurants, 10% of its network in the country, and Starbucks has shut about half of its 4,100 cafes.
Carlsberg expects the virus to hurt business but said it was too early to estimate the damage. Dozens of companies around the world have asked staff who have visited China to work from home.
China is a huge and fast-growing market for luxury goods, thanks to its burgeoning middle class. Burberry is yet to speak out on the crisis but it derives more than 16% of its revenues there and says Chinese spending – at home and abroad – accounts for 33% of the global market for luxury goods.
Aston Martin and Jaguar Land Rover (JLR) are also increasingly reliant on fast-growing sales to the world’s most populous country.
JLR sales were just starting to recover after a disappointing period in which China’s slowing economy hit profits. Now its parent company, Tata Motors, is warning of a group-wide impact. According to JLR’s latest annual report, 17% of sales – nearly 100,000 vehicles – come from China.
Premium alcoholic drinks are popular in China. However, Diageo is expecting an impact on performance, which it cannot yet quantify. Rémy Cointreau warned that a potential impact from the outbreak would be significant because of its big exposure to China.
China has also shut virtually all of its cinemas in a move that is expected to result in a $1bn-plus hit to the global box office this year in the world’s second-biggest movie market after the US.
Tourism
The number of Chinese people travelling abroad has skyrocketed in recent years, rising from only 10.5 million in 2000 to 150 million in 2018. That means tourism is likely to be one of the worst-affected industries worldwide, as cross-border travel is halted to control the spread of the virus.
About 391,000 Chinese tourists came to the UK 2018, up 16% according to Visit Britain. Those holidaymakers spent £657m between them – £1,678 each – over a stay that lasted more than two weeks on average.
The coronavirus outbreak is bad news for nearby destinations such as Japan, where Chinese visitors account for 40% of the tourist spend and cruise ships have been anchored offshore after passengers tested positive.
Royal Caribbean has called off eight trips to China and stopped any passengers who have travelled through, from or to China or Hong Kong in the past 15 days from boarding. It said the restrictions would cost it $50m of revenue.
Thailand’s tourism sector is braced to take a big hit. Its economy is struggling and Chinese tourism makes up about 4% of GDP, according to Capital Economics. The country’s central bank cut interest rates on Wednesday to an all-time low of 1%, partly blaming the coronavirus fallout.
Popular tourist destinations, such as Bali, face a huge impact. Indonesia’s travel agent association said 10,000 Chinese tourists cancelled trips to the island in a single day.
With air travel in and out of China severely restricted and passenger demand tanking, Cathay Pacific has cut flights to the country by 90%. The Hong Kong-based airline has asked 27,000 staff to take three weeks of unpaid leave to help see it through the crisis. Shares have fallen in other airlines, including British Airways IAG, because of flight cancellations.
The London-listed InterContinental Hotels has 443 outlets in China and has waived cancellation fees for a period, adding to the impact from a drop-off in domestic and inbound travel.
• This article was amended on 6 February 2020 to delete incorrect figures on the percentage of Chinese visitors to the UK as a proportion of tourism to Britain as a whole.
