The New Coronavirus Crisis in China ... Impact on Thai Manufacturing Estimated Loss of No Less Than $1.5 Billion

• The spread of the new coronavirus (2019 n-CoV) has led the Chinese authorities to implement stricter measures to contain the outbreak, including lockdowns in cities with high infection rates and temporary business closures. These actions have adversely affected the demand for Thai goods in 2020, further exacerbating Thailand's already weakened exports due to the impact of the trade war between the U.S. and China.
  
  
• In addition to the impact on Thai exports to China, there is a new risk that could lead to shortages of intermediate goods imported from China. The Kasikorn Research Center predicts that in Scenario 1, if the Chinese authorities can control the spread of the coronavirus within one month, the impact on Thailand's production chain linked to China will be relatively limited, but it will primarily affect consumer goods exports, resulting in an estimated loss of $400-800 million. In Scenario 2, if the outbreak in China extends to about 1 to 3 months, preliminary estimates suggest that it will impact the overall Thai economy by no less than $1.5 billion (with an estimated range of $1.5-6 billion), depending on how many additional major cities are locked down. This does not include the effects of any economic stimulus measures that the Chinese authorities may implement in the future. The impact includes losses in consumer goods exports combined with intermediate goods exports from Thailand to China, estimated at $900-1,500 million, and the effects of potential shortages of intermediate goods imported from China, such as electronics, chemicals, and automotive parts for Chinese car manufacturers, leading to production losses in Thailand valued at $600-4,500 million.

The spread of the coronavirus (2019 n-CoV) has escalated to the point where the World Health Organization (WHO) declared it a global emergency on January 30, 2020. The outbreak in China has expanded from its epicenter in Wuhan, Hubei Province, to several areas, leading to lockdowns in Taizhou and Hangzhou in Zhejiang Province, and many businesses in various regions of China have temporarily ceased operations to curb the spread. These measures may significantly affect Thai businesses, as Thailand currently relies on China for 45% of its exports and 46% of its imports.

              Given the current situation, the Kasikorn Research Center believes that the level of impact on Thailand will depend on the duration of the coronavirus outbreak and the containment measures in each province of China, which will have varying effects on Thailand's export and production sectors.

Scenario 1: If the Chinese authorities can control the spread of the coronavirus within one month amidst the outbreak spreading to various areas, leading to additional city lockdowns, causing some citizens and businesses to temporarily halt activities, which will disrupt consumer spending across China due to concerns about the outbreak. Thus, the initial impact on Thailand will primarily be on the export of consumer goods and food, which will significantly affect Thai exports to China in the first quarter of 2020. Products likely to see a slowdown in demand include fruits, rice, chicken, shrimp, beverages, canned fruits, and canned seafood. Currently, Thailand exports these products to China valued at approximately $7.6 billion in 2019, accounting for 25% of Thailand's total exports to China.

              Moreover, the halt of economic activities in Wuhan, the epicenter of the outbreak, along with some cities in Zhejiang Province for just one month, will have a limited impact on the production of various industries in China, as operators still have sufficient stock. Additionally, production lines in China should be able to manage the supply chain from other areas temporarily, so it is unlikely to affect the demand for intermediate goods from Thailand throughout 2020. However, if the spread of the virus continues, the production chain related to the aforementioned industries will likely face challenges.

              Scenario 2: If the coronavirus outbreak in China extends to about 1 to 3 months, the Chinese authorities have recently announced additional city lockdowns in Taizhou and Hangzhou in Zhejiang Province, which play a significant role in China's manufacturing and export sectors compared to Wuhan. If the outbreak cannot be controlled, there is a risk of lockdowns in cities with high infection rates, such as those in Guangdong Province, Shanghai, Yunnan, Guangxi, and other areas, further impacting businesses both in China and those connected to these regions.

              The Kasikorn Research Center believes that in this Scenario 2, not only will the export of consumer goods and food from Thailand deteriorate further, but the slowdown in the export of Thailand's intermediate goods will also affect imports, causing Thai businesses to face shortages of intermediate goods for production, especially in three high-risk sectors: electronics, automotive, and chemicals, which rely on imports of intermediate goods from abroad at rates of 20-70%. These sectors are particularly vulnerable as they depend heavily on China as a primary source of imports, more so than the overall average (with imports of intermediate goods from China accounting for 23% of Thailand's total intermediate goods imports). Thus:

• The electrical and electronics sector is at the highest risk of impact due to its connection with China for both exports of intermediate goods to China and reliance on imports from China. Specifically, imports of ICs, batteries/primary cells, and diodes/transistors rely on China for 52%, 34%, and 29%, respectively. Currently, the lockdown of Wuhan, which is a production base for upstream and midstream industries in the electronics parts sector, such as memory chips, LED displays, and HDD components, all of which are crucial for the production of computers, smartphones, electrical appliances, and automotive electronics in China. If additional cities are locked down, it will further disrupt the production chain in China and consequently affect Thai businesses in both imports and exports, which are already sensitive due to the trade war between the U.S. and China over the past two years.

The automotive sector has a relatively complex production chain. Initially, it is expected that besides the direct impact on Thailand from reduced exports and imports of cars and parts from Wuhan, the widespread outbreak will also affect the export of Tier 2 or 3 automotive parts from Thailand to Japan for further production into Tier 1 parts before being exported to assemble cars in Wuhan, which is one of the largest automotive production centers in China. The export of automotive parts from Japan to Wuhan accounts for approximately 4.8% of total automotive parts exports from Japan to China.

• For other automotive manufacturers based in areas affected by severe virus outbreaks, there is a risk of facing similar problems in the future.
• The chemicals industry faces dual risks of both raw material shortages and a sluggish export market. Currently, Thailand relies on imports of inorganic and organic chemicals from China at rates of no less than 44% and 24%, respectively. These products are essential raw materials in many industries. Therefore, the impact will not be limited to the chemicals manufacturing sector alone, but also to Thai production that uses chemicals as upstream raw materials, which is at significant risk. Notably, Wuhan alone is a crucial import source for Thai businesses, with functional amine compounds imported from this area accounting for one-fourth of imports from China, and Zhejiang Province is another significant export market for cyclic hydrocarbons, accounting for 14% as well.

              In the future, we must closely monitor the severity of the coronavirus outbreak, as it could lead to lockdowns in Guangdong and Shanghai, which are both significant production and trade gateways for the country. This could not only further weaken Thailand's exports of consumer goods, food, and intermediate goods but also the weakening of the Chinese economy will likely affect the demand and prices of commodities that Thailand exports to this market, which accounts for one-fourth of Thailand's total commodity exports, particularly rubber, cassava products, beans, grains, and wood, all of which directly impact Thai farmers that need to be monitored closely.

In summary, in the short term, Scenario 1 suggests that if the situation of the coronavirus outbreak in China improves within one month, the impact on Thai exports will be limited to the first quarter of 2020, estimated at $400-800 million, primarily affecting consumer goods and food exports. After that, exports will gradually recover. However, in Scenario 2, if the spread of the virus lasts throughout the first quarter of 2020 and more major cities continue to be locked down, businesses in Thailand may face shortages of intermediate goods from China, which Thailand relies on at rates higher than 23%, especially in electronics for computers and automotive sectors, including printed circuit boards, batteries/primary cells for electrical devices, as well as inorganic and organic chemicals, tires, automotive parts, and car bodies. Additionally, related businesses in glass, ceramics, and steel production may face similar issues that need to be monitored. Meanwhile, the export of Thailand's intermediate goods to China that are primarily affected are in the electronics and plastic pellets sectors, which further exacerbates Thailand's export businesses that are already facing weakness due to the repercussions of the trade war between the U.S. and China. Therefore, given the uncertain environment and the preliminary data at this time, the Kasikorn Research Center estimates that in Scenario 2, where the virus spreads for 1 to 3 months, the Thai economy will be impacted by no less than $1.5 billion, and we must closely monitor various situations. If the virus spreads to other important economic areas, leading to additional lockdown measures, the impact on the Thai economy may gradually increase, potentially reaching the upper estimate of $6 billion, with the impact on Thai exports estimated to be a loss of $900-1,500 million and the impact on Thailand's production sector from shortages of imported raw materials from China valued at $600-4,500 million. This assessment does not include the effects of any economic stimulus measures that the Chinese authorities may implement in the future.

The Kasikorn Research Center predicts that the impact on the Thai economy from the coronavirus will be no less than $1.5 billion.

Note: The impact on Thai exports does not include the effects of the closure of the Guangxi border, through which China imports goods from Thailand (both overland and by sea), accounting for 2.6% of China's total imports from Thailand.

Source: Estimated by the Kasikorn Research Center as of February 2020.