A man cycles past a closed Apple store in Beijing on February 8, 2020.
Greg Baker | AFP | Getty Images
The extended shutdown in China due to the coronavirus outbreak brought the economic giant to a virtual standstill, as factories struggle to get back on their feet and consumers stop traveling, shopping or eating out.
Progress on the return to work has been slow, analysts say. Even after workers come back they must follow quarantine orders, limiting production at factories.
“Controls in place to stem the spread of the virus have halted the movement of people, brought business activity to a standstill and closed offices up and down the country,” ratings giant S&P Global said in a report on Wednesday.
The outbreak, it said, will cause a short-term blow to consumption, an increasingly vital part of the country’s growth, and that will have a knock-on effect on other sectors, the S&P Global report said.
This is how the fallout from the outbreak will affect various sectors in China, according to reports from S&P Global and Morgan Stanley this week.
Restaurants, retail and leisure
The restaurant sector in China will see a “significant” fall in first-quarter sales, S&P Global said. The firm projected those figures will only be around 45% to 55% of sales revenue during the same period last year.
“The coronavirus outbreak coincided with this year’s Spring Festival. After the city of Wuhan was effectively sealed off and quarantined on January 23, restaurants all over the country closed their shutters for the Chinese New Year,” it said.
As a large number of people remain stuck at home, the situation has even forced bars to deliver happy hour drink orders.
Morgan Stanley added that the two-week shutdown of casinos in Macao will cost operators. It could result in a decline of more than 50% in first-quarter earnings before interest, tax, depreciation and amortization for the sector — a measure of a company’s operating performance.
Tourism revenue for the first half of the year will suffer a “severe blow,” affecting overall performance for whole year, S&P Global said, even if the epidemic is under control by March.
The outbreak coincided with the Lunar New Year holiday season — a peak travel period that S&P Global notes made up 16% of tourism revenue for the first half of 2019.
“These areas have proved particularly vulnerable during this outbreak and highlight the weaknesses in the revenue structure of domestic tourism,” the report said. “Most tourism destinations, hotels, resorts and theme parks have been temporarily closed.”
As compared to the 2002-2003 SARS epidemic, the new coronavirus outbreak will have a “more severe impact” on the property sector, said S&P Global.
Sales growth in third- and fourth-tier cities will likely not recover this year, its report said.
“This is because of a halt in demand from migrant workers, who traditionally return to their hometowns during Spring Festival, and typically use the period to buy property,” it said.
The long-term impact on commercial property, such as office buildings and malls, also shouldn’t be underestimated, S&P Global said.
“It will take a long time to recover foot traffic in shopping malls. More importantly, the virus has encouraged Chinese firms to attempt large-scale shifts towards online operations, further increasing the reach of e-commerce to new consumers,” it said.
According to Morgan Stanley, over 50 Chinese cities shut down property sale sites, or suspended marketing events as well as on-site construction.
Cinemas have already suffered a “clear blow,” and the sharp losses at the box offices over the Spring Festival will be “difficult to fully turn around,” the S&P Global report said.
The virus had come during one of the biggest sales seasons of the year for China’s movie theaters. Seven films scheduled for release during the Chinese New Year season were pulled, costing 1.4 billion yuan ($210 million) in losses at the box office. Most theaters also shut down for two weeks.
While people are shopping online more as they stop going out, those companies could also be temporarily hit.
Morgan Stanley pointed out that the logistic disruptions are affecting deliveries, and is a near-term negative for Chinese e-commerce players. Shutdowns throughout China means roads and highways have been closed.
Alibaba last week warned that virus-related disruptions may hit its revenue growth in the March quarter. Its CEO Daniel Zhang said that the delay in employees returning to work is preventing merchants and logistic companies from resuming operations.