PANDEMIC MONITOR: 6 February 2020

PANDEMIC MONITOR

HEALTH

What is coronavirus?

Coronavirus (2019-nCoV) is a pathogen that causes a respiratory illness previously not recorded in humans. The virus was first detected in the Chinese city of Wuhan, Hubei province, in December 2019. The vast majority of cases have been reported in China, notably in Hubei province, although the virus has also been detected in more than 20 other countries, and this number is likely to increase. 

Symptoms

The most common symptoms of 2019-nCoV are fever, cough, sore throat, fatigue and shortage of breath.

Transmission

The virus likely emerged from an animal source but is now known to spread through to human-to-human transmission. Epidemiologists note that human-to-human transmission generally occurs between people in close proximity (less than 2m), and is believed to spread primarily via respiratory droplets dispersed through coughing or sneezing. There are indications the virus may also be spread by people showing no obvious symptoms. The incubation period – the time between exposure to the virus and the onset of symptoms – is thought to be between two and 14 days.

Treatment

There is no specific antiviral treatment available for coronavirus. People with the virus receive supportive care to relieve symptoms, while treatment for severe cases includes care to support vital organ functions.

Prognosis

The virus can range from mild illness to pneumonia; around one in five cases are thought to be severe. Older people and those with pre-existing medical conditions, such as diabetes and heart disease, appear to be at greater risk of becoming seriously ill or dying of the disease. The morality rate for coronavirus to date is recorded at around 2 per cent. This is significantly lower than the mortality rates of severe acute respiratory syndrome (SARS), which had a mortality rate of approximately 10 per cent and the even more lethal Middle East respiratory syndrome (MERS), at 37 per cent.

Recommendations to limit threat of infection

Recommendations to limit the threat of infection include regular hand washing, using a tissue and covering the mouth and nose when coughing and sneezing and thoroughly cooking meat and eggs before consuming. Close contact with those showing symptoms of respiratory illness, including coughs and sneezes should be avoided. Face masks offer little protection from the virus unless accompanied by the measures noted previously, but may be worn in order to defuse tension among communities with high rates of infection.  


INDUSTRY SECTORAL IMPACTS

Supply chains

  • Companies dependent on China-based production are highly vulnerable to the adverse impacts on the modes of the supply chain, namely in commercial aviation, maritime shipping and overland transport.  One highly notable case is South Korean automaker, Hyundai Motor Company, which was forced to stop production due to the coronavirus outbreak disrupting the supply chain. Due to shortages of parts, Hyundai factories in South Korea have been forced to temporarily close.  

Commercial aviation

  • There have been sharp falls in airline travel with concomitant drops in China-linked tourism revenues. Many South East Asian states have been affected, but this will likely continue to impact nations well beyond this region.
  • Numerous major airlines have suspended direct flights to China, affecting passenger and freight traffic.
  • Health checks at third-country airports have also intensified, presenting a collateral risk to travel and tourism in those jurisdictions, despite an absence of confirmed cases there. Regardless, as the number of suspected cases continues to rise in several regional air hubs, it is likely that further restrictions are imposed if the outbreak continues to spread beyond mainland China.

Shipping

  • The outbreak has already disrupted some commercial maritime operations and is set to have a much greater impact as international concerns over the virus intensifies. On 3 February the Australian government said it would quarantine vessels from China for 14 days. Other countries are likely to follow this examples as the number of cases of infected passengers on cruise ships increase.
  • That countries are now beginning to focus their attention to the maritime industry is positive. However, responses are likely to be somewhat limited, and likely focused on larger commercial ports with a high level of maritime traffic. Other smaller ports, where the capacity of the authorities to carry out adequate testing of staff and cargo, are therefore likely to remain exposed to the risk of contagion. Relatedly, the presence of many ships with fraudulent licensing, including fishing vessels.

Overland

  • Hong Kong, Kyrgyzstan, Laos, Mongolia, Nepal, North Korea, Pakistan, Russia, and Vietnam have completely or partially closed border crossings to mainland China. Tajikistan has banned all goods imports from China, and have intensified controls of food deliveries coming from third countries.
  • In addition to the border closures, scores of countries in the region have enhanced inspections of goods coming directly or indirectly from China. This is likely to delay inspections and extend processing times at border posts.
  • Countries where cross-border movements are still allowed, inspections of cargo and screenings of drivers are likely to be enhanced, potentially leading to drivers with symptoms of the disease being quarantined or goods being held up at border posts. Enhanced border controls will also add to non-tariff barriers and make international trade more costly.
  • Overland travel within China is also severely restricted between major and badly affected cities during a time of high demand for travel for the Lunar New Year. Such restrictions are also likely to damage sales predictions for the holiday period.

Tourism

  • Several countries, including the UK and the US, have issued new travel advisories warning against all or non-essential travel to China. These are already limiting the number of people travelling to China, but are also likely to spook visitors due to visit other near-by countries for fear of contagion.
  • With the WHO declaring the outbreak a PHEIC, tourism to other countries in South-East Asia and East Asia is also likely to experience a drop in demand. While tour operators are unlikely to suspend operations, consumers spooked by the many media headlines are likely to cancel their planned journeys.
  • Several countries have also suspended visa upon arrival, either for all Chinese nationals, Chinese nationals who have been in Wuhan over a set period of time, or all travellers coming from China. The level of response changes between countries. Relatedly, but less formalised, some countries have not announced an explicit ban on Chinese travellers, but there are reports that Chinese nationals are being turned away at arrival.
  • The isolation of cruise ships based on the nationality of some passengers is likely to concern some consumers, who may cancel their planned journeys.

Goods-manufacturing

  • Any industry with a high demand for human labour, including garments and electronics, where there is a high affluence of workers, often in poor sanitary conditions, is likely to be at a high risk of contagion; should the outbreak spread to such centres elsewhere in SE Asia, it will be extremely hard to contain.
  • The closure of borders to mainland China is almost certain to cut off the supply of some goods into the country, which is among the top-three consumer markets of the world.
  • Additionally, foreign exports to China have been affected by loss of earnings of consumers in China due to factory closures and logistical problems.

Agriculture

  • China is a major consumer of foreign agricultural products, but the flow of goods could stall with significant restrictions on the supply chain, including reduction in the volume of air freight and/or quarantine on merchant vessels prior to entry at foreign ports. 

Energy

  • Prices of oil and gas have been falling with benefits to consumers but losses to producers leading to possible output cuts. 
  • With industries grinding to a near halt in China, the world’s second largest economy requires a lot less oil to keep the engines and machinery of the economy running. Demand is dropping, leaving a surplus of fuel in the global market that keeps prices relatively low.
  • As the globally integrated Chinese economy declines, this will have negative consequences for markets across the world.

Service sector

  • The impact on the services sector is more mixed.
  • Frontline or client-facing roles, including in hospitality and meetings, incentives, conferences and exhibitions sectors, are likely to face higher risks of contagion, while virtual services – be they in finance or publishing – are likely to face a lower risk of contagion. Nevertheless, the combined output of the services sector is likely to decline due to the outbreak.
  • In addition, insurance and related industries are likely to face a surge in claims over the next two weeks to one month, due to cancelled business trips or seized equipment.
  • In the medium term, it is not inconceivable that companies with large cohorts of employees working remotely over the coming two weeks will experience greater cyber-threats and vulnerabilities.  Not all IT departments will have all the necessary latency in place for such a surge in external traffic, resulting in longer processing times and risk of website downtime. Should those issues become extensive, a higher-than-normal level of traffic is likely to reduce latency of websites. 
  • Relatedly, it is likely that some companies will not have enough secured equipment available to meet such as surge in demand, and may allow some employees to use their personal equipment to ensure business continuity. Such attempts to be flexible are likely to increase the number of vulnerabilities to corporate IT infrastructure, underscoring the need for network segmentation. 

 

GEOPOLITICAL TRENDS

Impact on foreign investment

At the macro level, countries that form a key part of China’s ‘belt and road’ (BRI) infrastructure initiative and rely heavily on Chinese investment will also likely be impacted by the outbreak. As financial resources will be reoriented to focus on containing the virus from spreading, future planned foreign investments could be postponed or withdrawn altogether.

Projects under development are unlikely to be affected at this stage, however they may face significant operational constraints. This could be due to a shortage of construction workers from China resulting from coronavirus-related travel restrictions. Indeed, local opposition to BRI-linked projects in some countries such as Kyrgyzstan stems from the fact that these rely heavily on Chinese workers rather than domestic labour.

Rising levels of Sinophobia could fuel existing tensions while anti-Chinese sentiments will likely be amplified through disinformation disseminated via social media. Protests targeting Chinese nationals and commercial interests will make conditions for overseas workers from China more difficult. Reports of violent confrontations could deter new investments by Chinese state-owned entities in some jurisdictions. 

China derives geopolitical and soft power not from pure military strength, but rather through the large volume of trade it has with other countries. Poor management of the outbreak in the medium-long term, coupled with a prolonged disruption in trade linking China to other countries will in turn likely diminish Beijing’s geopolitical influence.

Xenophobia and discrimination

The coronavirus outbreak has led to a series of discriminatory incidents against Chinese nationals in an increasing number of countries in Asia and beyond.

People of east or south-east Asian origin will likely face a higher risk of being targeted, particularly in popular tourist destinations, as the number of globally confirmed cases continue to rise. 

Bilateral relations

The Beijing government is becoming increasingly defensive over how much of the rest of the world is responding to the epidemic, with its diplomats clearly briefed to object to any efforts by countries  to introduce health and travel measures deemed ‘unfriendly’ to China.  Such efforts, given the willingness of Beijing to isolate huge numbers of  its own nationals, is increasingly viewed as at best counter-productive and at worst ‘exceptionalist’ by other nations.

 

ONE-WEEK OUTLOOK

Coronavirus is having significant adverse impacts on global trade and commerce with a speed and intensity that will prove extremely challenging to reverse, let alone halt, in the one-week outlook.

Health

The increasing number of cases, including fatal ones, is very likely going to continue at its current pace largely due to absence of a vaccine, which is unlikely going to be readily available until the summer. Treatment will continue to focus on symptom alleviation, particularly at the early stages of infection. Viral mutation is also plausible scenario, and if this manifests, then a vaccine to treat infection will prove elusive. At this time, negative indicators far outnumber positive ones in the one-week outlook

Travel

As infection cases increase and cross international borders, foreign governments will harden control measures by imposing tighter travel restrictions, including border closures. Commercial airlines have already scaled back flights to China, even temporarily halting services. At this juncture, indicators point to further travel restrictions in the one-week outlook.

Macro-economic

As large sections of China’s economy grinds to a halt and regional supply-chain mobility becomes tightly restricted, the macro-economic outlook becomes increasingly dire. More factory closures are a near certainty as the Chinese government tries to control the spread of the disease. Foreign companies heavily reliant on China’s manufacturing sector will be forced to either weather the storm or shift their supply chains to less risky markets. These are major structural and operational changes for organisations that are unlikely going to manifest over the next week.

Sectoral

As each economic sector assesses the near- and short-term impacts of coronavirus, companies will continually assess their relative risk appetites and tolerance and execute measures that will either blunt the severity, transfer it and/or eradicate risks to operations and personnel. Each industry sector will implement broadly similar risk mitigation measures to protect business performance, assets and staff. Work-from-home measures have been widely implemented in Hong Kong and Shanghai, and similar measures implemented in Greater China and the broader APAC region are nearly certain in the one-week outlook.