Coronavirus bears down on B.C. economy

Damage to international trade is inevitable, observers say

As the number of people infected in the coronavirus outbreak originating in Central China surges past the number of total cases in the SARS outbreak some 17 years ago, observers are warning that serious economic damage may also be happening.

That is because the outbreak is essentially shutting down the lucrative Chinese consumer market at the Lunar New Year period – a time of peak consumption and travel in the world’s second-largest economy. That the virus emerged in the city of Wuhan and surrounding Hubei province, at the centre of China’s rail and road networks and also site of the country’s 14th-busiest airport, adds a level of concern that prolonged travel restrictions could affect supply chains.

On January 30, the World Health Organization declared the coronavirus outbreak to be a public health emergency of international concern.

For B.C. agri-food exports like wine, the outbreak will mean serious headwinds for producers with large stakes in the Chinese market, said Vancouver-based veteran international trade adviser Allison Boulton. 
“I’m not going to put a dollar figure on it, but there’s a saying that if you have China as one of your key markets, and you couldn’t get your wine onto Chinese shelves before Chinese New Year, then don’t bother,” Boulton said.

She estimated that B.C. and Canadian wine exporters sell between 80% and 90% of their wine in China during the Lunar New Year holidays, and if consumers suddenly stop buying products because of the coronavirus outbreak, the resulting backlog of stock will likely create strains between Canadian producers shipping to China and Chinese distributors. 

That’s because if Chinese distributors cannot sell their stock for this year, they may request a reduced order next year, or cancel orders completely in severe cases, from their Canadian partners.

“I can’t think of a worse time,” Boulton said. “I’ve seen it described as Canadian Halloween, Thanksgiving, Christmas, New Year’s, Valentine’s Day and Mother’s Day all rolled into one. This is when so much of the gift-buying happens. It’s going out for supper. It’s buying more food because people are coming over for dinner. It’s travelling. You often hear it being called the world’s largest migration, with hundreds of millions of people travelling. And when you see the news report, people are not even going outside. Shops are closed. So this depth of how much this will hurt the economy will take a few months to unfold.”

For Central 1 Credit Union deputy chief economist Bryan Yu, the extent of the impact will largely depend on the length of the outbreak. Yu noted that, while he believes there was “somewhat” of an overreaction from North American markets to the outbreak initially, even a minor slowdown in China in a global market already dealing with trade protectionism, tariffs and fears of a recession could be a problem.

The good news, Yu said, is that he doesn’t see an outbreak putting a big dent into China’s overall economic output if it is resolved within months. But the risk remains that if the outbreak isn’t contained, other Canadian sectors outside of retail and agri-food exports may be affected.

“It’s definitely a wait-and-see approach right now to see where things go,” he said. “I’m hopeful that they get this under control, and we don’t have to talk about this in the next couple of months … but right now, it is a negative risk for the economy. The United States signed a Phase 1 trade deal with China, and that was a positive, but if this event continues a way, then it could have a negative impact on Chinese manufacturing, and maybe expectations of growth.”

B.C. will also likely feel any economic waves from China more acutely now than it did during the SARS outbreak, as the province’s business ties with the Chinese market have expanded in the last two decades, Yu cautioned. One area could be the local restaurant business here in B.C., he said, as SARS led to a sharp drop-off in food-services cycles, and Chinese-Canadian patrons in the Lower Mainland may pull back restaurant spending in the same way that Chinese residents have in the face of the coronavirus threat. 

The Chinese Benevolent Association of Vancouver already confirmed those fears; in a January 27 letter, the community group said it is urging local Chinese community members to “be vigilant” during the Lunar New Year period by avoiding venues like dinner banquets.

“If possible, you should cancel large-scale gatherings or banquets,” the association said in its statement. “If a banquet has to go ahead, we advise those who plan to attend that – if you are showing flu-like symptoms or have recently returned from the high-danger outbreak areas of China and have not self-quarantined for at least 14 days – you should not attend.”

Boulton said it is clear which sectors will likely suffer the most. “You think about seafood being impacted, because people stop eating out,” she said, adding that Canadian exporters must look at being flexible to support the needs of Chinese partners dealing with a soft consumer market. “You think about exports like fruits … and this will extend into the service industry.

This current outbreak is going to put a strain on your business relationships, and how companies on both sides of the Pacific deal with this issue will be a very big indicator of how the business relationship will continue long-term.”

As of January 30, the coronavirus had killed 170 people – all in China – with 7,711 confirmed cases in that country. Sixteen other countries, including Canada, have also reported cases, with nations like Japan and Germany reporting cases from patients who had not travelled to China recently.

Andreas Schotter, associate professor of international business at the Ivey Business School at the University of Western Ontario, and a former executive in the Chinese market who witnessed the SARS outbreak in Hong Kong, called the coronavirus situation “very fluid."

“But the good news is that this crisis seems to be handled very differently from the SARS outbreak some 17 years ago. I am confident that this virus will be handled with utmost professionalism – albeit with the fact that we will likely see more spread globally.”

But Schotter added that the outbreak will hurt the economy in China and globally, as the resulting malaise will undoubtedly dent figures for travel and consumption.

“We will learn more about the supply chain effects once the Chinese New Year holidays have passed,” he said. 
“Shanghai has already extended the holiday period; and if Guangdong will do so too, there might be broader effects across numerous industries. And yes, there will be an impact on tourism and the related retail and restaurant consumption, particularly in Vancouver and Toronto.”