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Coronavirus Impact on the Chinese Economy

DuckerFrontier, January 29, 2020

With the unsettling news that the coronavirus that is rapidly expanding across China, we offer our sincere hopes that your family, friends, and colleagues have not been directly affected.

Our experts have provided some initial analysis on what businesses should expect in the coming weeks and months. This epidemic will disrupt many companies’ operations. It will hinder employees’ ability to travel, companies’ production plans, and weigh on demand expectations. The unexpected outbreak will also impact strategic plans for 2020. Unfortunately, there is too much uncertainty surrounding the spread of 2019-nCoV for executives to quantify its impact on the economy and plan for the remainder of 2020.

Even so, we can confidently assume that the coronavirus’ impact will be substantial, and that it will affect some parts of the economy more than others. With this in mind, we can begin shedding some light on the virus’ potential ripple effects. Here is our initial take on the situation:

Selected Impacts
  • General economy: 2019-nCoV will offset recent signs of economic stabilization and undoubtedly weigh on China’s overall growth and create substantial downside risks, particularly in the first 3–6 months of the year.
  • B2C companies: B2C MNCs will feel an outsize impact from the epidemic as Chinese residents stay home and spend less (due to fear or, in some cases, quarantine). However, consumer spending is likely to rebound once the virus is contained.
  • B2B companies: B2B MNCs will also experience challenges arising from the coronavirus, though they are likely to vary from company to company. Those with a manufacturing footprint in or around Wuhan are likely to experience the greatest impact, as are B2B2C companies whose customers are feeling the pinch.
  • Healthcare companies: Companies serving the healthcare space are likely to see mixed results on account of 2019-nCoV’s spread.  On one hand, rising patient loads in hospitals across China will increase demand for consumables. On the other hand, the costs of virus containment—particularly in provinces struggling with revenue generation—have the potential to impact budgets and spending priorities.  While the latter dynamic is unlikely to shift priorities at the national level, this will depend to some degree on the size and scope of the containment effort.
Signposts to Watch

Companies should monitor the following signposts, as they may allow executives to get ahead of major changes in the market:

  • Lockdowns of additional cities
  • Extension of factory holidays
  • Widespread store closures outside Hubei
  • WHO evaluation

For more insights on the developing story, watch DuckerFrontier’s Head of Research, Martina Bozadzhieva discuss how the Chinese government is responding to the coronavirus outbreak on CNBC.

We are currently conducting additional research into the coronavirus’ impact on China’s economy and business environment. Subscribe to The Lens, our weekly newsletter covering the latest global events impacting your business for our most up-to-date coverage on the coronavirus. Contact us today to connect directly with a team member.

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