The street market in Ubud, Bali was unusually quiet on a recent afternoon. “At this time of day, Chinese tourists would normally be crowding through here,” said Ketut, who sells bags and wooden crafts to tourists. His sales have halved since the coronavirus outbreak began in January.
The loss of the China trade has hit south-east Asian economies particularly hard, as tourist groups pull out, Chinese suppliers halt deliveries to manufacturers and imports of everything from Thai and Malaysian electronic equipment to Vietnamese dragon fruit grind to a halt.
The crisis has laid bare just how dependent these countries are on the world’s second-largest economy, a top trading partner and source of foreign visitors for countries across the region.
It also offers a glimpse of the potential risks to Europe and the US as the epidemic spreads. Worries about the impact of coronavirus prompted some central banks to cut rates to cushion any lingering effects. The US Federal Reserve cut its benchmark rate by half a percentage point on Tuesday, hours after Australia and Malaysia slashed interest rates.
“If the quarantine continues for more than two or three months, it will negatively impact our country,” said Nuttabhat Jarach, a worker at the tourist assistance centre in Bangkok’s Don Mueang airport. Passenger numbers are down 40-60 per cent in February compared with a year ago, according to the Tourism Authority of Thailand.
China is the top source of visitors to Thailand, as well as Singapore, and accounted for about a quarter and a fifth of arrivals of the two countries respectively last year.
Economists trying to project the economic cost of coronavirus often compare it to the Sars outbreak in 2003 — with the caveat that 17 years ago, China was not yet the dominant regional economic player it is today.
“One difference (since) the Sars epidemic is that the Chinese economy is much larger and much more integrated with other Asian countries, and Chinese tourists play a greater role in these countries and economies,” said Yasuyuki Sawada, chief economist at the Asian Development Bank.
The degree of economic integration is especially clear in manufacturing. This is perhaps starkest in the case of Vietnam, where semi-finished and finished goods cross the two countries’ land border regularly — and sometimes more than once — in the making of a product.
Because of disruption to trucking routes, South Korea’s Samsung turned to air freight for some of the parts it sources from China for its two factories in Vietnam.
However, this is not an option for lower-margin sectors such as textiles, where producers need to use sea transport, find non-Chinese suppliers or dip into their inventories and hope the crisis ends soon.
“If this goes on for three or six months, no problem,” said Alex Tran, director of Lac Viet Handicraft Export Co, a Danang-based manufacturer of wicker furniture, picture frame and other handicrafts. “But if it lasts to the end of the year, this will cause difficulty for us.”
Sriram Muthukrishnan, head of trade product management at DBS, the Singapore-based bank, said that some of its customers expected a short-term dip in orders of 5-10 per cent. “The coronavirus is forcing people to recognise even more strongly how much of the intermediate trade in Asia is dependent on China,” he said.
Restaurant staff wait for customers in a quiet Singapore street. Singapore launched a S$6.4bn ($4.6bn) package to cushion the effects of the coronavirus slowdown © Reuters
Governments are now coming up with policy responses.
Singapore last month proposed a S$6.4bn ($4.6bn) programme to counter the outbreak’s economic impact. The package was announced a few days after the city state slashed its growth forecast by a percentage point to -0.5 per cent to 1.5 per cent from 0.5 to 2 per cent.
Malaysia last week unveiled a Rm20bn ($4.7bn) stimulus package.
Thailand, whose government last year launched an “Eat, Shop, Spend” campaign targeting domestic travellers to revive its slowing economy, is looking at a new stimulus measures.
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Indonesia and Thailand have mentioned coronavirus as a factor when they made recent quarter of a percentage point rate cuts. Authorities in the region are also taking steps to unblock the arteries of trade, including at the Vietnamese-Chinese border.
However, some manufacturers say the disruption could have permanent effects on how their supply chains are configured — and potentially benefit some south-east Asian suppliers.
Malaysia’s Maybank said in a note that the coronavirus criss would reinforce a move away from China that was under way because of the US-China trade war.
Aeumulus, a Malaysian company that designs and produces testers for semiconductors, is sourcing parts from Taiwanese or Korean suppliers at a higher cost because its Chinese suppliers are not fully operational and unable to confirm delivery dates.
“With this virus, maybe there is a lesson to be learnt for all manufacturers,” said Chuah Choon Bin, executive chairman of Pentamaster, a Malaysian automation and tech manufacturer. “Everyone is concentrated in China [but] they need to look elsewhere.”
