Exit Stage Left : China as the World's Foremost Supplier of Manufactured Products : Diversification in the Works

"These are unprecedented rates of contraction far in excess of the impact of the [global financial crisis]."
"The direction is of course not unexpected as the coronavirus shut down much of China's economy, but the magnitude is breathtaking."
Derek Holt, head, capital markets economics, Bank of Nova Scotia

"Clearly the data has been severely impacted by COVID-19, but the fact that it was so much weaker than consensus,  highlights how difficult it is to gauge the path of the economy and how extensive the economic damage is."
"While factory reopenings and easing restrictions on movement will help to lift these numbers going forward, it is likely to take several months to get back to normal."
TD Securities report

"The economic fallout of coronavirus is widening rapidly outside of China, with major consequences for the global economy in [the first half of 2020] and probably beyond."
"As such, external demand for Chinese goods and services will suffer from a serious drag in the months ahead."
Oxford Economics report

As a sign of just how hard China's industry and production has been hit by the novel coronavirus, a sharp drop in factory production and retail sales to start 2020 was reported by China, considered by most financial experts as an ill omen for the global economy. One that will most certainly impact on China's vaunted reputation as a reliable source of production and world-wide distribution, thanks to its low business taxes and competitive production based on its low-earning-workforce.

Industrial output fell by 13.5 percent in January and February year-over-year, according to the National Bureau of Statistics for China, representing a sharper drop than anticipated by experts; the weakest reading since January 1990, according to Reuters. Not aided one iota by a drop of 20.5 percent of retail sales from a year earlier.

With over 150,000 confirmed cases of the new coronavirus worldwide, and over 5,700 deaths according to the World Health Organization, this data out of China has shaken world markets. As the country most directly affected by the virus, these larger-than-expected dips in China's economy underscore how difficult it is to fully understand the precise extent of COVID-19's effects on the world market.

China is regarded as the world's largest engine of economic growth. And when it can begin returning to normal remains to be seen. But even when factories once again are able to ramp up production, new questions have arisen about whether customers will be in a buying position. Added to that is the reality that investing in Chinese production is fraught with danger; China has seen fit to 'nationalize' some U.S. companies operating out of China. It has also stopped shipments from China of needed goods like surgical masks and pharmaceuticals to the U.S.

Vladimir Signorelli, head of Bretton Woods Research, a macro investment research firm, stated that "Using China as a hub...that model died this week, I think". And there is little doubt that what he thinks is being echoed in the minds of many economists. As pointed out by Shehzad H.Qazi, managing director of China Beige Book, the most frightening aspect of this crisis in economic terms is not the short-term damage to the world economy, but the potential long-lasting disruption to supply chains. Relying on one major source to supply the world's need for products is problematical, as the current crisis points out.

A container ship leaves the Port of Ningbo, China at sunrise

VCG via Getty Images

There have been more closures reported in Chinese auto manufacturers and chemical plants than in other sectors, according to Qazi, who pointed out that IT workers have not yet returned to most firms as of last week, while shipping and logistics companies have reported higher closure rates than the national average. "The ripple effects of this severe disruption will be felt through the global auto parts, electronics, and pharmaceutical supply chains for months to come."

The coronavirus that is now sweeping the world came courtesy of China's Hubei province through the city of Wuhan where it emerged, resulting from the cultural cuisine favouring wild animal parts which played its critical role yet again in unleashing a new, rampaging virus to plague the globe. And that gift from China, which it bridles at being connected with as 'racist', is now in the process of disengaging the rest of the world from China's status as the world's foremost supplier of low-cost manufactured products.