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Coronavirus

Wuhan lockdown spurs corporate Japan's contingency response

Potential impact on tourism and industry rocks markets in China and beyond

Chinese authorities shut down rail travel into and out of Wuhan on Jan. 23 in a bid to curb the spread of a new coronavirus.   © Reuters

TOKYO -- For the first time in almost two decades, Tencent Holdings founder Pony Ma will not directly hand out traditional red envelopes of cash to employees to celebrate the Lunar New Year.

Such are the precautions being taken in China, even in Tencent's home base of Shenzhen, some 1,100 km away from Wuhan, the epicenter of the coronavirus outbreak.

For the many Japanese companies based in Wuhan, one of the country's leading industrial hubs, it is nothing short of "code red."

Authorities on Thursday halted travel into and out of Wuhan, believed to be the source of the outbreak. A major player in the Chinese government's "Made in China 2025" industrial modernization initiative, the city houses the country's first 3D NAND flash memory factory and is a key link in global supply chains for such products as smartphones.

The city's airport has been temporarily closed as part of the quarantine. Flight-tracking website Flightradar24 showed about two-thirds of scheduled flights canceled as of Thursday at 7 p.m. Japan time, compared with 98% of flights arriving and departing as usual Wednesday.

ANA Holdings unit All Nippon Airways canceled a Wuhan-bound flight from Narita Airport scheduled for Thursday and a Friday flight to Narita from Wuhan. More trips could be affected should the shutdown continue. ANA operates one round-trip flight a day between the airports.

Spring Airlines Japan, a subsidiary of Chinese low-cost carrier Spring Airlines, is halting its thrice-weekly flights along that route from Saturday through Feb. 29.

About 160 Japanese companies operate in Wuhan, with between 500 and 600 Japanese personnel posted in the city or on extended business trips there, according to the Japan External Trade Organization. Most have already left Wuhan, a diplomatic source familiar with the situation said.

Honda Motor, which operates three plants in Wuhan, has banned travel there from the U.S. or Japan. Toyota Motor supplier Denso has ordered the handful of Japanese employees it has dispatched to a joint venture in the city to stand by at home during the Lunar New Year break starting Friday, and it has barred other Japanese staff from traveling to Wuhan.

Manufacturers and other companies that had already put operations on hold for the holiday have directed employees to work from home if any urgent matters arise.

The transportation shutdown is harder on retailers that usually stay open during the holiday. Some tenants at a mall run by Japan's Aeon have opted to close up shop because staffers cannot travel to work.

The impact of the virus is not limited to Wuhan. Huawei Technologies has postponed from February to late March a developers' conference in Shenzhen, in what a company representative called a safety precaution.

With the virus expected to spur more people to stay home during one of the year's busiest travel and shopping seasons, concerns about the potential macroeconomic damage are growing. During the 2003 outbreak of severe acute respiratory syndrome centered in China, the country's real gross domestic product growth dropped 2 percentage points in the three months through June from the previous quarter.

The prospect of slower consumer spending and industrial activity in a Chinese economy that was already losing momentum has rattled stock and commodity markets.

The Shanghai Composite Index slumped 2.75% on Thursday to 2,976, while the Nikkei Stock Average slid about 1%. Benchmark indexes in Hong Kong and South Korea sank 1.5% and nearly 1%.

On top of weaker consumption in China, "there's growing concern that the negative impact will spread to East Asian countries expected to have many Chinese visitors over the long holiday," said Toshiyuki Murai of Sumitomo Mitsui DS Asset Management (Hong Kong).

Japanese retail stocks took a hit, as did sellers of items popular among visitors to Japan, including baby products maker Pigeon and cosmetics company Fancl. Tourism to Japan dropped off during the SARS outbreak, and Nomura Securities estimates that a similar decline now would drag down demand by 480 billion yen ($4.37 billion).

Chinese travel companies suffered as well, with BTG Hotels (Group) and Air China shares each down about 4%. U.S.-based Wynn Resorts has dropped sharply over the past week.

Then there are the companies that have benefited. Medical stocks jumped in mainland China and Hong Kong, including Shanghai-listed Jiangsu Bioperfectus Technologies, which is developing a coronavirus detection kit. Shares of Japanese surgical mask manufacturer Kawamoto have surged this week on speculative buying.

Crude oil futures fell below $56 a barrel in New York on Thursday amid concern about reduced demand in the world's largest petroleum consumer. Copper, for which China accounts for half of all global consumption, sank to a one-month low, with such other nonferrous metals as aluminum and nickel declining as well.

"Based on our experience with SARS, our base case scenario is for the [new] outbreak to end in about half a year," a Japanese fund manager said. "It could also spread globally, so we have to invest carefully."

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