China’s coronavirus hits Myanmar economy

China’s coronavirus epidemic is hitting Myanmar’s important manufacturing and tourism industries as well as disrupting border trade, but in the longer term the crisis could encourage more supply chain factories to relocate from its giant neighbour.

“We have lost all our customers,” said Ma Khin Khin Win, director of tourist agency Myanmar YoYo Travels and Tours which focuses on Chinese tourists.

The outbreak of the novel coronavirus in the central Chinese city of Wuhan came at the worst possible time for Myanmar’s tourism industry, with the peak season lasting from October to March.

The epidemic has been declared a global emergency by the World Health Organization and is having an economic impact well beyond China where economic growth is forecast by the Economist Intelligence Unit (EIU) to fall to 5.4 percent from 5.9pc in 2020.

Fitch Solutions Macro Research this month lowered its forecast for Myanmar’s real GDP growth for the financial year 2019-20 to 6.3pc from 6.5pc, down from an actual 6.8pc in 2018-19. It expects the slowdown in tourism activity to account for most of the impact as Chinese nationals accounted for nearly a third of over two million foreign tourists last year.

But the impact of the virus outbreak goes beyond a drop in Chinese travellers.

Crude oil prices have lost around US$10 per barrel since mid-January on coronavirus-related fears. China is the biggest oil importer and if economic activity slows further then analysts say benchmark oil prices could dip by another US$3-5 per barrel.

Oil and gas exports account for roughly half of Myanmar’s total export revenues and a drop in price will affect the government’s efforts to attract foreign investment in the upcoming bidding round. The energy ministry is expected to release 15 offshore and 18 onshore blocks to international bidders later this year.

The EIU’s global trade lead Nick Marro expects much of the economic shock to hit China in the first quarter, which he says will have consequences for ASEAN over that same period.

“In addition, the effects of weaker economic activity in China will reverberate out into regional supply chains. Pain will derive not only from quarantine measures and factory closures, but also the suspension of key port and logistics networks,” Mr Marro explained.

Myanmar has to date not closed its borders to Chinese travellers and most flights have continued. Wa authorities in eastern Shan State have shut down casinos and nightclubs in their territory.

No cases have been detected so far, according to the government. Health minister U Myint Htwe told parliament that the authorities would only be able to test and verify the virus in Myanmar facilities next week. At present the ministry has to send the samples of suspected patients to Bangkok to be tested.

On February 2, a chartered flight evacuated 59 of 63 Myanmar students stranded in Wuhan to Mandalay, where they are currently quarantined for two weeks.

But the long, porous border with China, stretching for more than 2200 kilometres, remains unrestricted and open to movements of people on both sides.

Mr Marro warned that closing borders could cause some diplomatic blowback.

“China has already responded very angrily to the US for imposing its own travel restrictions, likely in part to dissuade other countries from following suit. A worst-case scenario would be if countries began enacting blanket bans on imported Chinese goods, which could be destabilising for the [Southeast Asian] region,” he told The Myanmar Times.

Trade is another casualty.

Border trade between China and Myanmar is looking at possibly a 50pc reduction from the usual US$400 million per month, said U Khin Maung Lwin, commerce ministry assistant secretary.

“Around US$200 million worth of border trade volume could be affected,” he told this newspaper.

The Ruili-Muse border checkpoint has been closed since late January and this severely affected trade, according to industry sources. No timeline for the reopening has been announced.

During the last financial year, formal trade between Myanmar and China exceeded $11.3 billion as Myanmar exported more than $5 billion worth of goods to China and imported $6.3 billion.

Exports to China are mostly agricultural products such as rice, melons and sugar. However, most trade is now halted at the border checkpoints, with fresh produce rotting because of the delays.

The Myanmar government is arranging for melons and other products to be redirected to the domestic market and other foreign destinations, according to deputy commerce minister U Aung Htoo.

Manufacturers, meanwhile, have been hit by the halt of imports of raw materials from China due to the suspension imposed on Chinese factories by the authorities trying to curb the spread of the virus.

Import licences for raw materials in the textile industry have fallen about 20-30pc, according to Myanmar Garment Manufacturers Association (MGMA).

“I have seen two or three [garment] factories shut down because of the lack of raw materials mostly from China,” commented U Min Soe Han, label officer of MGMA.

But garment exports to major markets in Europe have not been affected so far and some industrialists are hoping that China’s troubles could benefit Myanmar in the long run.

“With the current epidemic, it might present a new [business] opportunity for Myanmar,” said William Wang, manager of Mingtex Myanmar Industrial Co, which has a manufacturing base in Yangon’s Hlaingtharyar industrial zone. Mingtex is a subsidiary of the world’s largest lacemaker.

The virus and disruption to industrial production in China have alarmed many retailers and manufacturers who depend on Chinese imports.

Mr Wang believes Myanmar could capitalise on the disruption to attract manufacturers who are relocating out of China. “It all depends on whether the Myanmar government can propose attractive investment incentives, business-friendly regulations and improve the frequent strikes by Myanmar workers.”

Mr Marro of the EIU also said the virus, in the long-term, could speed up the supply chain shifts that are already unfolding in Southeast Asia. Diversification by multinationals into Myanmar and the rest of the region has been ongoing for years and has accelerated owing to the US-China trade war.

“With companies forced to close their factories or evacuate staff from the Chinese mainland, their most immediate concern will be business continuity: how can I keep my operations online amid all of this?” he added.

“Southeast Asia might look very attractive as a result, especially for any companies who were on the fence.”

Source: Myanmar Times

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