Virus could wipe off $300-M trade of China-dependent PH factories

By: Roy Stephen C. Canivel, Philippine Daily Inquirer, 6 Mar 2020

With local factories still dependent on the input of coronavirus-hit China, a United Nations body dealing with trade issues sees Philippine exports cut by about $300 million this year.

The Philippines placed 18th among economies most affected by the impact of the new coronavirus that has forced lockdowns and business closures in many parts of China, the world’s second biggest economy, according to a technical note published by the United Nations Conference on Trade and Development (Unctad) on Wednesday.

“China has become the central manufacturing hub of many global business operations. Any disruption of China’s output is expected to have repercussions elsewhere through regional and global value chains,” Unctad said.

The impact would be felt across different manufacturing sectors in the Philippines—from automotive, whose exports could fall by $22 million, to the most vulnerable sector, communication equipment, which could have the steepest decline in exports by $115 million. These, however, were just initial estimates, since Unctad said the full impact of the coronavirus disease that first appeared in Wuhan in China would only become clearer in the coming months. The new virus has caused the disease called COVID-19.

“Even if the outbreak of COVID-19 is contained mostly within China, the fact that Chinese suppliers are critical for many companies around the world implies that any disruption in China will be also felt outside China’s borders,” the Unctad said.

China’s Purchasing Manager’s Index (PMI), which provides a picture of how factories are coping, fell to 35.7 in February from 50 in January, its lowest since 2004, even worse than how it fared during the global financial crisis.

The production capacities of many countries are dependent on the intermediate products Beijing makes. China accounts for around 20 percent of the manufacturing intermediate products used in global trade, making Beijing an important cog in the machineries of factories around the world.

Nearly two decades ago, China only accounted for 4 percent of these intermediate products in 2002.

According to Unctad, the European Union would be the most affected economy. Vietnam, which have been cornering foreign direct investments vis-a-vis the Philippines in recent years, could be the most battered in Southeast Asia, with exports losses expected to reach $2.3 billion.

The United States, another important trading partner of the Philippines, could see shipments fall by $5.8 billion.

Back home, the Philippine Economic Zone Authority, whose exporters largely account for the country’s total exports, has previously said that more than 40 percent of importations for the local electronics industry came from China-based suppliers.

IHS Markit economist Joe Hayes previously said the Philippines still have stocks of purchases from recent months, giving it enough buffer to survive delivery disruptions. However, if these disruptions continue, he said “production volumes could be adversely impacted.”

The Philippines’ PMI had increased in February to 52.3 from 52.1 last January.