For businesses, virus in China fans fear and uncertainty
China’s worst health crisis in years has sparked fear and uncertainty for businesses from North America to Asia that depend on trade in the affected region.
Experts say it’s too soon to know how disruptive the crisis will prove. But it’s already having an impact.
McDonald’s has shuttered restaurants in five Chinese cities, including the inland port city of Wuhan where the crisis is centered. Shanghai Disneyland has temporarily closed as a precaution. Restrictions on travel and fears of flying to the region are threatening to depress demand for oil and jet fuel just as China's Lunar New Year is beginning.
In a sign of China’s vast economic reach, even niche companies in America have begun feeling squeezed. In Houston, Rockstar Wigs worries that production delays in China will hold up shipments. Omaha, Nebraska-based Home Instead Health Care has stopped sending caregivers to the homes of elderly clients in Wuhan.
So far, there are 830 confirmed cases of the virus and 26 deaths. Wuhan and 12 other Chinese cities are on lockdown, isolating a combined population of more than 36 million.
"Personally, I now cannot go to Wuhan to negotiate new orders, meet with new vendors, take foreign companies for supplier visits, and visit trade shows,” said Stanley Chao, a consultant in Rancho Palos Verdes, California, who helps foreign companies do business in China. “I may lose three to five trips to China, which is my bread and butter. In turn, my team in China cannot work, and I may have to temporarily lay them off for a while."
The growing fears over the virus rattled financial markets Friday. The Standard & Poor's 500 stock index endured its worst day since early October and snapped a two-week winning streak. The S&P index fell 0.9% after having been down as much as 1.3% earlier. Shares in airlines and other companies in the travel and tourism industries, which stand to be among the hardest-hit sectors if the crisis worsens, fell sharply.
So far at least, the virus appears to be less lethal than the SARS outbreak of 2003, which killed hundreds, though it is too soon to say for sure. And Beijing has apparently been more forthcoming about the health risks this time, leaving less room for panic-inducing rumors to take hold.
“The authorities are sharing more information,” said Kent Kedl, partner at the consultancy Control Risks responsible for Greater China. “They’re getting out in front of it.’’
Moreover, because the outbreak coincides with the Lunar New Year holiday, many businesses are closed as tens of millions of migrant workers return from big cities to their hometowns in the countryside.
Still, Wuhan is a central hub for China. Isolating the region could devastate Chinese production in automobiles, aviation, high-tech mechanical and electrical manufacturing, said Ahmed Rahman, an economist at Lehigh University.
"Its central role in facilitating exchange between the Chinese hinterlands and the rest of the planet cannot be overstated,” Rahman said. “Arguably, out of all the regions of China, closing off Wuhan may be the most disruptive to the global economy."
Tourism could be hurt, too, because of the region’s many flights to Bangkok and Tokyo.
Many businesses are scrambling to contain the potential damage.
McDonald's said it has closed all of its restaurants in five cities in Hubei province — Wuhan, Ezhou, Huanggang, Qianjiang and Xiantao — until further notice. Its operations are running in other cities in Hubei where public transportation is available.
The fast-food giant is also taking the temperature of all employees when they arrive at work and sending anyone with a fever or cold symptoms home. Delivery drivers are required to wear masks. McDonald's is also disinfecting high-contact surfaces more frequently at its Chinese establishments, including tables, chairs door handles and self-ordering kiosks.
The Shanghai Disney Resort announced Friday that it is temporarily closing Shanghai Disneyland “in response to the prevention and control of the disease outbreak and in order to ensure the health and safety of our guests.''
Ford, General Motors and Fiat Chrysler all have restricted travel to Wuhan and other parts of China affected by the virus. Most auto factories, though, remain closed for the Chinese New Year and haven’t been affected yet. Ford said in a statement that it has a special team monitoring the situation.
Fiat Chrysler has banned corporate travel in areas locked down by the Chinese government due to the virus, while GM has restricted travel to all of China unless it is “business critical and approved in advance,” a company statement said.
Home Instead Senior Care, based in Omaha, Nebraska, which sends caregivers to tend to elderly clients, has suspended service to its six or seven clients in Wuhan — after arranging for their families to take care of them. The company has 70 clients in the southern city of Shenzhen, where the virus has yet to strike. But worried clients there are already telling caregivers to avoid public transportation. “The clients are saying, ‘Take a taxi so you’re not at risk’” of infection, said company spokeman Dan Wieberg.
At family-owned Rockstar Wigs in Houston, the operations manager, Anna Reger, said she worries that “this could really put us behind this year."
The company’s wigs, which range from platinum drag queen classics to neon Halloween specials, are hand-stitched with custom designs and special fibers in several Chinese factories where work is currently on hold.
Reger said the company typically starts on thousands of wigs right after Chinese New Year, seeking to be well stocked throughout the year and especially in time for Halloween. She said she's hoping Chinese authorities can resolve the problem soon.
"I’m not going to let it stress me until we know what we’re dealing with."
The outbreak arrives just after the United States and China reached a truce in an 18-month trade war that involved the two world’s two biggest economies burying each other’s products in tariffs.
Stuart Shulman, president of Synchronis Medical in Ann Arbor, Michigan, said the Wuhan shutdown is "the double whammy." Already reeling from tariffs that have devoured as much as 30% of his profits, he now may not have any workers at the Chinese factory where medical gowns are cut and sewn.
"The timing is so catastrophic. I don’t think a lot of people understand the situation," Shulman said. Because workers have left for the new year holiday, they may not be able to get back to work.
Restrictions on travel and fears about flying to the region could take a toll on demand for oil, gasoline and jet fuel. The suspension of public transportation services and quarantine enacted Thursday could cause a short-lived oil demand drop of 50,000 to 70,000 barrels per day in the Hubei province, according to an analysis from S&P Global Platts.
Global oil demand is likely to drop by 150,000 barrels per day in the next two months, but “if a significant economic slowdown were to ensue as a result of the virus spreading, then the overall demand impact could exceed the 700,000 barrels per day,” said Claudio Galimberti, head of demand, refining and agriculture analytics at S&P Global Platts.
The SARS outbreak in 2003 led to a drop of 300,000 barrels of oil per day during the height of the epidemic.
Wiseman reported from Washington and Mendoza from San Jose, California.
AP writers Tom Krisher in Detroit, Alexandra Olson and Cathy Bussewitz in New York and Dake Kang in Beijing contributed to this report.
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