How The Coronavirus Is Changing Global Supply Chains

Although the spread of COVID-19 within Hong Kong and China appears to be containable, exporter confidence has diminished as a result of the triple threat posed by the epidemic, softened global demand and Sino-US trade tensions – as evidenced by the recent HKTDC Export Index rating drop to 16 (from 18.8 last quarter). With consumer demand weakening across multiple industries, jewellery, watches and luxury goods were some of the most severely impacted products – faring only a score of 8 on the index.

According to a survey of 500 Hong Kong-based exporters, close to 94 percent stated that the coronavirus epidemic had adversely affected their companies’ operations. “Since the Sino-US trade dispute surfaced, many manufacturers have set up production lines outside the mainland to avoid additional tariffs,” said Nicholas Kwan (HKTDC Director of Research). “Following the COVID-19 outbreak, operations in some factories in the mainland – and even in Japan and Korea – have been suspended or have yet to fully resume, putting a strain on the global supply chain.”

While exporters and manufacturers began pulling away from Hong Kong and China, Vietnam has quickly become an attractive alternative. Despite the country’s congested traffic infrastructure and the rising costs of land and labour, Wendy Ma, HKTDC Assistant Principal Economist of Asian and Emerging Markets, noted that the Vietnamese Government is driving massive expansion of the country’s infrastructure – most notably in Hai Phong, Cat Bi and Van Don. “These improvements have helped to make Vietnam’s northern provinces much more attractive to overseas investors, and an electronics cluster is now taking shape.”