UNCTAD: The impacts of Covid-19 on global production networks

On Thursday (5 March), the United Nations Conference on Trade and Development (UNCTAD) released a report which explains the economic impacts of the Coronavirus (COVID-19) on global production networks. The report further highlights the slow down in Chinese manufacturing and exports, the data sources and methodology employed, and the outbreak’s impact on the global value and supply chains. Below presents the summary of the report.

The People’s Republic of China has become an integral part of the global production networks as well the world’s largest exporter. In recent times, China was widely known as a main supplier of components and inputs for many goods such as medical equipment, cellphones and automobiles, among others.

China’s Purchasing Manager’s Index (PMI) recorded its lowest value since 2004 at 37.5, which captures a sharp fall in its manufacturing over the previous month. This annual fall in output by 2 per cent is a direct impact stemming from the spread of COVID-19.

The global economy is now rippling with the impact from the 2 per cent decline in China’s output and it has been estimated that countries are experiencing loss of around US$50 billion (S$69.30 billion), the report suggests. Sectors such as communication equipment, precision instruments, automotive and machinery are some of the most affected sectors.


The novel Covid-19 virus not only poses danger to human life, but it can also threaten to slow down the world economy as well as the Chinese economy. Because China is now a central manufacturing hub of numerous global business operations, which means that any disruption in Chinese output will likely impact the regional and global value chains.

Based on the latest data from the National Bureau of Statistics of China, there has been a substantial fall in output. In February, China’s PMI dropped by 22 points (Figure 1a). PMI has high correlation with exports, and a drop in PMI suggests that exports also decline by around 2 per cent on an annualized basis. Therefore, the decline in February spread across the year is identical to a -2 per cent of intermediate goods supply, the report notes.

Based on the indicators on shipping, Chinese exports also declined in February (Figure 1b). The first half of February saw markedly lower container vessel departures from Shanghai whereas there was an increase in the second half. Despite this, there is continuous decline in the Shanghai Containerized Freight Index, signalling lower demand for container vessels but excess shipping capacity.


The report uses data from the United Nations Statistics Division trade data encompassing around 200 countries and 13 manufacturing sectors to identify countries and economic sectors which are most vulnerable to Chinese disruption of intermediate input exports.

The Grubel-Lloyd Index (GLI) of intra-industry trade captures the extent of integration of each industry and country with the Chinese economy. Specifically, the GLI functions as a proxy for the percentage of a country’s exports in each industry which is susceptible to the disruption of supply in China.

The report’s analysis assumes that supply disruptions occur only in China. Possible output disruptions in other countries from the outbreak are not considered in the analysis. Other assumptions include a constant supply capacity in the rest of the world economy and that the results should be interpreted as short-run effects. Only manufacturing output is considered in the analysis and not minerals and commodities. The impact on the trading partners of China from the lower Chinese import demand is also not accounted for.


China has only become more important to the world economy over the last 20 years. The reason is not just because of the country’s status as an exporter and manufacturer of consumer goods, but also as a primary supplier of intermediate manufacturing inputs globally. Around 20 per cent of global trade in manufacturing intermediate goods come from China currently (4 per cent higher than in 2002).

Sorted by GLI, Figure 2 shows China’s integration in global value chains across sectors. Substantial disruption in China’s supply chain will affect many sectors globally such as automotive and communication equipment, precision instruments and machinery. Many firms all over the world are worried at the measures implemented by China to contain the outbreak, such as the restriction imposed on the movement of people and economic activities, as this can severe the supply chain of Chinese production as well as those firms.


Depending on how reliant a country’s industries are on intermediate goods imports from China, a decline in the supply of Chinese intermediate inputs can affect the exports of that country. For example, Japanese companies may struggle with obtaining the component items for assembling digital cameras and European vehicle manufacturers may face shortage of auto-parts. Most companies that operate with a lean and just-in-time manufacturing process will experience limited use of inventories, leading to shortages which will in turn affect their overall exports and production capabilities. Table 1 below shows the potential impact of Covid-19 on exports by sector for countries most vulnerable to Chinese supply disruptions.

The most impacted economies will be Vietnam (communication equipment). European Union (machinery, automotive, and chemicals), Taiwan Province of China (communication equipment and office machinery), United States (machinery, automotive, and precision instruments), Republic of Korea (machinery and communication equipment), and Japan (machinery and automotive).


Although uncertainty still surrounds the extent of impact of the virus on China’s productive capacity, latest statistics do hint at a substantial downturn, the report highlights. The full impact of the outbreak on global value chains will manifest itself more clearly as the months pass. A particular point of importance is how the global economy will be affected by the disruption in Chinese supply of intermediate inputs.

According to the report, firstly, although the impact from Covid-19 is contained mainly within China, the impact does reach outside China’s borders to East Asian, European, and American regional value chains, as evidenced by Chinese suppliers being critical for many firms across the globe. Depending on the changes in the supply sources and the containment of the outbreak, the estimated global effects may also change.

Secondly, the spillover effects of disruption in Chinese supply will be different across economic sectors, determined by the containment measures in China as well as the geographic localisation of the outbreak. For instance, if the automotive industry is nearer to the source of the Covid-19 outbreak, the automotive intermediate exports may decline more. The report stresses that it does not address this scenario due to the shortage of information. The possible impact on the various global value chains will be more certain when sectoral data on Chinese output becomes available.

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