Hana Financial Research Institute, "No Industry Safe from COVID-19"

Reduction in Tourists, Avoidance of Outings, Contraction of Domestic Demand in China
Direct Impact Expected on Distribution, Hotel, Aviation, and Cosmetics Industries

[Asia Economy Reporter Kim Min-young] "There is no industry safe from the novel coronavirus infection (COVID-19)."

Hana Financial Management Research Institute, affiliated with Hana Bank, analyzed in its report titled "Industry Impact Due to the Spread of COVID-19" on the 16th that "the spread of COVID-19 is expected to cause direct damage to industries such as distribution, hotels, airlines, and cosmetics through reduced tourists, refraining from going out, and contraction of domestic demand in China."

It added, "If the suspension of operations by Chinese companies prolongs, the weakening of the global value chain due to supply chain disruptions could spread shocks to most domestic manufacturing industries, including IT and automobiles."

◆Widespread impact on Korean industries expected due to high economic and geographical linkage with China＝While the Hana Financial Management Research Institute does not consider the possibility of COVID-19 becoming a global pandemic very high, it analyzed that the economic ripple effect will surpass the impact of Severe Acute Respiratory Syndrome (SARS).

The institute particularly diagnosed that if the global value chain in China weakens, confusion in the global supply chain could occur, especially in industries with high production shares in China such as textiles, leather and footwear, electronic optical devices, machinery, and transportation equipment.

It emphasized that for South Korea, due to the high economic and geographical connectivity with China, damage across industries is inevitable. Not only is there concern about direct damage to travel, accommodation, duty-free, airline, and cosmetics industries due to reduced Chinese tourists and restrained outings leading to consumption contraction, but also industries such as electronic devices, transportation equipment, machinery, and chemicals, which have high exposure to the global value chain in China, are expected to be affected by prolonged production stoppages at Chinese factories.

Kim Young-jun, head of the Industry Analysis Team at the institute, pointed out, "South Korea's export (including Hong Kong) and inbound tourists' dependence on China exceeds 30%," adding, "The spread of COVID-19 will impact the Korean economy through routes such as reduced tourists, contraction of domestic demand in China, and weakening of the global value chain."

◆Direct damage to consumer goods industries such as distribution, airlines, hotels, and cosmetics is inevitable＝The institute identified the distribution industry as the most directly impacted by the spread of COVID-19. This is due to sales losses from temporary store closures caused by visits from confirmed COVID-19 patients, damage to duty-free shops from decreased inbound and outbound travelers and reduced Chinese consumption, and inevitable business contraction of department stores, large supermarkets, and traditional markets due to avoidance of gathering places.

Senior Researcher Kim Moon-tae stated, "Duty-free shops, which have high sales per store and are sensitive to changes in inbound and outbound travelers, will be heavily impacted," adding, "Considering that recent high growth in duty-free shops was due to a surge in foreign sales, a significant slowdown in growth is expected."

In fact, Lotte Department Store's main branch in Myeongdong, Seoul, and Shilla Duty-Free Shop in Jung-gu, Seoul, which were reportedly visited by confirmed COVID-19 patients, temporarily closed for disinfection work.

The airline industry is also expected to face direct revenue declines due to suspension and reduction of flights on Chinese routes, which account for about 20% of all international passenger routes, as well as damage from reduced travel on non-Chinese routes. The decrease in air cargo volume due to factory shutdowns in China is also negative. Especially following the boycott of Japanese products and political unrest in Hong Kong, the reduction of Chinese routes due to the spread of COVID-19 raises concerns that if the current situation prolongs, further restructuring in the airline industry cannot be ruled out.

The hotel industry is analyzed to face an inevitable decrease in foreign guests and domestic guests known as "hokangseu" (hotel + vacation). The decline in group activity demand has led to cancellations of various events and meetings, which is expected to significantly affect ancillary facility sales. Particularly, 3-star hotels, which have high room sales and a high proportion of Chinese guests, are expected to be severely impacted, while 5-star hotels are predicted to experience greater shocks from decreased ancillary facility sales.

The cosmetics industry, which has been expanding into the Chinese market, is also on alert. Although the cosmetics sales share in Wuhan, Hubei Province?the epicenter of the virus?is not large, if store closures prolong due to the virus spreading throughout China, including Shanghai, sales decline is inevitable. The institute also anticipates shocks to sales in duty-free channels and road shops due to the decrease in Chinese and foreign travelers.

◆If the COVID-19 situation prolongs, shocks are expected to spread to manufacturing＝Regarding manufacturing, the institute stated that except for the automobile industry, which has temporarily shut down domestic factories due to parts supply disruptions caused by Chinese production plant closures, there is no direct impact yet. Even in the automobile industry, the actual impact of factory shutdowns is expected to be limited due to the resumption of operations in Chinese factories and existing finished vehicle inventory.

However, if the spread of COVID-19 prolongs, disruptions in parts and material procurement and logistics may occur, and China's import demand may also contract, leading to expected damage to major manufacturing sectors such as electronic devices, machinery, and chemicals.

Research Fellow Ahn Hye-young emphasized, "In preparation for a prolonged shock from China, companies should reduce their dependence on China for parts and materials, secure alternative import sources, and diversify exports to spread risks."

This content was produced with the assistance of AI translation services.