The Economic Impact of Coronavirus in China: Food Supply Chain Focus

General Data

1. As of 12 pm February 5 (UTC+8), the number of confirmed cases in China has reached 28,018, while the number of suspected cases is 24,702. This epidemic has caused 563 deaths in China. Besides China, a total of 215 confirmed cases have been found in 24 countries, which caused one death. ^[1]

2. The Chinese stock market plunged about 8% on Monday (February 3), wiping $393 billion off the value of the Shanghai bourse, on the first day of trading after the extended Lunar New Year Holiday. However, in the following three days, the stock market has rebounded slightly. 

3. Xu Gao, chief economist with Bank of China International Ltd, said: "The epidemic will drag down the first-quarter GDP growth by one percentage point, based on our primary calculations," He also added: "If China can keep the epidemic well under control in February, the overall impact on the annual GDP growth rate will be limited, probably around 0.2 percentage points." ^[2]
The Economist Intelligence Unit also offered their prediction:

The team’s baseline scenario is that the public health emergency within China will be under control by end-March.^[3]

4. According to the SIIS report, the novel coronavirus epidemic poses direct harm to three main sectors:

• the service sector, especially consumer industries such as tourism, catering, entertainment, and logistics; 

• the manufacturing sector including mobile phones, automobiles, and electronics industries since Wuhan is a manufacturing center in China and there is no definite timeframe for resumption of operations, which may disrupt the global industrial chains to some extent; and 

• the trade sector, due to potential cuts or even shutdown of airlines, sea routes, and borders by some countries as a result of the prevailing panic or geopolitical considerations. However, 27.3 billion yuan ($4 billion) has been provided by governments across all levels as subsidies for controlling the epidemic as of January 29. The Chinese government and people are trying their best to contain the outbreak.^[4]

Data and facts about supplies

1. Ministry of Industry and Information Technology has classified medical supplies for epidemic prevention and control into three categories:
Extremely scarce, including medical protective clothing and N95 Masks;
Relatively scarce, such as ambulances;
Trying best to ensure, including disinfection supplies and temperature monitors. ^[5]

2. At present, about 60% of masks companies have resumed production. According to the total production capacity, the daily output in China exceeds 10 million. 84 disinfectant, hand disinfectant, and 75% of medical alcohol are also badly-needed supplies. However, the resumption rate of antiseptic product manufacturing companies has only reached 40% to 60%. The demand for imports is at an all-time high. ^[5]

3. According to the General Administration of Customs, from January 24 to February 2, customs officers around the country quickly inspected and released 94,000 batches of imported epidemic prevention and control materials, 240 million pieces, valued at 810 million yuan. Protective equipment accounted for 74.9%, a total of 230 million pieces, worth 610 million yuan, including 220 million masks and 2.529 million pieces of protective clothing.

The customs have set up special acceptance windows and green channels at customs clearance sites across the country to provide convenient and efficient customs clearance services for epidemic prevention and control materials. For epidemic prevention and control materials donated overseas, procedures for tax reduction and exemption shall be made after registration and release. The customs also ensure "zero delays" in customs clearance for imported medicines and medical equipment used for epidemic prevention and control treatment. ^[6]

4. National Health Commission has released a notice to allow expedited entry of some disinfectants during the outbreak of the Coronavirus, including alcohol disinfectants, chlorine-containing disinfectants, chlorine dioxide disinfectants, and peracetic acid disinfectants. ^[7]

5. The TOP5 popular mask brands on Taobao are:
3M, Winner(domestic), Honeywell, haishihainuo (domestic) luohua (domestic)^[8]

Data and facts about food

1. As the outbreak occurred in close temporal proximity to the Chinese Spring Festival, celebrations and festivities were reduced or even canceled altogether. Purchasing of gifts suffered significantly, translating to significant reductions in sales of alcoholic ^[9] beverages. Restaurants and the service sector have suffered significantly. Conversely, demand for frozen foods  ^[10], and convenience food has increased ^[11]. The epidemic has had little influence on dairy products and condiments yet ^[12].

2. Wine: based on preliminary estimates, the outbreak may affect 10-20% of annual sales ^[10]. Generally speaking, high-end wine consumption before the Spring festival accounts for a significant proportion of annual sales. For example, the consumption of high-end wines and spirits represented by Maotai (茅台) and Wuliangye (五粮液) may reach 60-70% before the festival and 30-40% after the festival. Demand and sales have suffered significantly. According to rough estimates, the decrease in consumption during the Spring Festival has led to at least a 6-12 % reduction in annual consumption ^[10], and the decline in sales at the sub-high-end, mid-range and below should be even greater.

3. Quick-frozen food and convenience food: The first quarter is the peak sales season for quick-frozen food ^[11]. However, as previously mentioned, we expect a major spike in sales as people wait out the epidemic. 

4.Dairy: There is a widespread belief amongst Chinese people that a high-protein diet can enhance immunity. Additionally, the immunoglobulins and other immune-enhancing bioactive components of milk are also believed to increase natural immunity. Some analysts are predicting the outbreak to stoke demand for dairy ^[9]. 

5. Condiment: Compared with FMCG (fast-moving consumer foods), the purchase frequency of this kind of food is relatively low, and the use cycle is relatively long ^[9]. The decrease in eating out caused by the epidemic may have a negative impact on the catering sector. In contrast, on the consumer side of things, there could be a small increase in demand.

6. Meat products: Ham sausage products sell well during the Spring Festival ^[12]. China's domestic pork sector has already suffered major losses due to an outbreak of African Swine Fever. The outbreak of the Coronavirus is likely to compound this situation by disrupting normal supply chains, particularly logistics capacity, including feed and livestock shipments. Overall, in the short term, the supply and demand for fresh meat, particularly pork is likely to be weak ^[10].

7.Health food: online sales show good performance, and the influence of the epidemic on pharmacy channels is not obvious ^[11].

Data and facts about retail

1.The spread of the novel Coronavirus has dealt a blow to offline retailers, including department stores, supermarkets, shopping malls, etc., as people have been required to stay at home with no opportunity to shop. 

2. While many large brick-and-mortar retail stores are going out of business, convenience stores, fresh supermarkets, and other small community businesses, which are closer to the residents, have performed well. One convenience store located in Wuhan, sold over 8000RMB products from 12 pm of January 22 to 7 am of January 23 immediately after the city was put on lockdown. Usually, the shop would only sell 500-600 during this time frame ^[13].

3. New retail fresh food e-commerce platforms have been subject to heightened demand. In Beijing, during the Spring Festival, the daily online orders of vegetables and fruits in Suresh  (a new retail fresh food e-commerce owned by Suning) increased by more than 200%, and Suning Food Market, a part of the Suning Small Store(Suning’s community-based convenience store), saw a 245% increase in online orders ^[14]. 

4. Crossborder, e-commerce is booming. As many Chinese people are in dire demand for medical supplies such as face masks, disinfectants, etc., these products have been subject to massively increased demand. O'MALL, a cross-border e-commerce platform, jumped from #161 to #2 on the iOS China APP store shopping category in less than two weeks ^[15].

5. Innovative retail modes like unmanned delivery, self-service stores, and AI-based mobile shops are also performing extremely well as people attempt to avoid face to face interactions. 

Others

1.China’s supply chain:
On January 25, Cainiao (A express logistics company owned by Alibaba group) made a joint announcement with China's major express logistics companies such as Zhongtong, Shentong, Yunda, Yuantong, Best, and Debang, as well as overseas logistics companies such as AirCity International Logistics Group, Xinke Logistics, and Danmas Logistics. Domestic and global green channels were officially opened, and relief materials donated to the society in Wuhan were transported free of charge from home and abroad. In just 10 hours, the first batch of 100,000 masks that arrived in the warehouse reached the special warehouse in Wuhan; on January 30, Alibaba purchased medical supplies such as N95 masks from around the world, which arrived in Shanghai from Indonesia and South Korea. ^[16]

2.Effects on the fast consuming goods market
Consumer awareness of cleaning protection has increased significantly. Purchases of cleaning and disinfecting products such as disinfecting products, facial tissues, and body cleaning products, including soap, shower gel, and hand sanitizer have all increased significantly. In particular, the purchase of hand sanitizers increased significantly during the epidemic period. This trend will be more prominent in the first quarter of 2020.

3.The losers and the winners in this battle: