Uncategorized / April 14, 2020

Can Chinese Agriculture Recover from COVID-19?

The effect of COVID-19 on the global economy is impossible to overstate. Entire industries have ground to a halt, and it took trillions of dollars in stimulus money just to stop the bleeding. The uncertainty is palpable. Some countries have been hit harder than others, and it is likely that the long-term effects of the virus will reshape the global trade landscape. Chinese agriculture in particular is vulnerable. Here’s why.

    1. Declining Exports

China’s agricultural exports have been doubly impacted by the spread of Coronavirus. On one hand, the lockdown has prevented the movement of crucial goods such as animal feed. The constraints on logistics in the agriculture-focused regions where the virus originated have been tremendous, and exports have suffered. At Wuhan’s port, week five saw only seven departures, down from 47 at the same time last year.

Not only have domestic production capacities declined significantly, but China’s trading partners are also reeling from the effects of the virus. Although neither party has signalled a change in policy, many expect the pandemic to affect the phase-one trade deal between China and the US, which will require China to purchase billions in agricultural goods from the US.

Meanwhile, in Europe, countries that export heavily to China have also been hit hard by the virus. Italy and Spain, who together export large quantities of pork, citrus, and coffee to China, have been among the hardest hit by the virus. Major destinations for export, such as the US and Japan, have also seen contractions from the virus. Overall exports had dropped by 17% by the first week of March

(Source: Bloomberg)

 

     2. Credit Tightening 

A credit crunch has enveloped the world, as lenders flee towards lower-risk alternatives. China is no exception to this rule, and businesses and private citizens alike are having a much harder time accessing credit. A survey by the Chinese Small and Medium Enterprise Association found that millions of businesses are on the verge of collapse, with only 10% of businesses reporting that they could hold out for longer than 6 months with the cash they have on-hand

This phenomena could have a catastrophic effect on China’s exports and overall economic performance, as small and medium enterprises account for an estimated 80% of total employment. Credit card debt could also be a huge problem. Overdue credit card debt is up by over 50% from last year, and delinquency rates spiked to 20% in February. Corporate delinquency rates have skyrocketed also, and banks could face a 39% drop in profits on the year, according to the Japan Times.

      3. Loss of Market Share

China’s reputation as an exporter will undoubtedly suffer, and ‘Made in China’ had become synonymous with low quality even before the spread of the virus. Chinese agriculture stands to lose out on market share in high-value regions such as the Netherlands and Japan, where commodities such as garlic and ginger have already declined significantly. Labor-intensive commodities, which have taken the hardest hit, are particularly vulnerable:  cotton, soybeans, and rubber could all lose out in the long run.

China’s market share in certain sectors could lose out to competitors for the foreseeable future. India, for instance, is poised to claim some market share from China, not only in agriculture, but in electronics, pharmaceuticals, and other sectors. Exports to China will suffer as well, with countries like Brazil shifting product to other markets such as the US. 

The impact of Coronavirus is so far-reaching that all economic sectors have been affected. China, whose reputation as an exporter had already been hammered by persistent accusations of sub-par production, may face long-term repercussions as COVID-19 continues its stranglehold on the global economy.

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