Tony Nash, founder, CEO and Chief Economist of Complete Intelligence is a guest in RTHK’s Business and Market Discussion podcast. He says that the lockdown of major Chinese cities could make foreign enterprises re-think their supply chain strategy.
Some notes below:
Do you see this in the US purely as a China problem or is it a global problem?
People here are taking precautions. A lot of airlines have stopped direct flights to China. People are concerned about it, but that’s not an overwhelming worry. The preparations that are happening around Asia, but we had this drill before. From a western perspective, it looks like these preparations are being mode and it’s a panic mode. I think Asian governments are doing the right thing by ramping up and preparing for the worst. Best case, it’s not really that bad, but we’ve done all these preparations just in case.
How this is hitting tourism, retail sales, trade, commerce because Wuhan is a logistics center. The whole country is virtually shut down. People are not traveling at the moment. You can imagine China will take a big economic hit. One think tank saying economic growth could drop below 5 percent.
I would argue that it’s already below 5% for about a year. The magnitude of the response is enough for anyone to get nervous. I think the response is the right response, but it has made people nervous. It’s a difficult balance to strike for the Chinese government. Yes, it will have a hit to the economy. But there may be a sharp rebound.
It’s happening over the new year season. But in terms of manufacturing and exports, if these things can be contained before the end of new year, it can be rebound.
And that’s because there will be a lot of demands once this is over.
How about the impacts on commodities? Copper? Ag products?
These are all the typical fear plays when people are worried or when China is in crisis. Traders are shorting because the trade deal may not be implemented. My hope is for the government to turn this around in a couple of weeks.
I think that it’s oversold like Gold is overplayed. People are still learning the magnitude of the impact.
Do you think this could derail the Phase 1 deal?
There are two years for that. This is a relatively short impact like 1 to 2 months. I don’t think the demands will change that much. Because there will be a spike on buying. If this is a medium impact, then this will change.
This maybe the event that pushes some manufacturers over the end, and may start moving their production capacity to other areas.
And that’s the thing that there’ll be a long impact on the Chinese economy.
Absolutely, and that’s where the economy will be stagnant. That’s the main worry.
Do you think there will be a big equities sell-off?
It’s possible but I don’t think it will happen until we have evidence about the cases or intensity of the impact. We have to wait a little bit of time to see if these are properly reported cases.