- Economists point out that demand for coronavirus-related medical products, such as face masks, has helped China sell more products overseas than expected.
- "Because of the health crisis in the past several months, we did see a high demand for PPE (personal protective equipment)," James Zhao, general manager of Cainiao's global supply chain, told CNBC.
- However, the longer-term demand for China's medical products is still unclear.
Employees make face masks on a production line at a glove factory, which has started producing face masks as overseas orders for masks at an all time high amid the coronavirus outbreak, on May 16, 2020 in Shenyang, Liaoning Province of China.Yu Haiyang | China News Service via Getty Images
BEIJING — The global coronavirus pandemic shows little signs of letting up, and some say that's creating further demand for China's medical products.
As the global economy continues to falter, the interest in Chinese medical supplies is an encouraging sign for the country's exports — which support a critical part of its economy, as well as millions of jobs. Economists point out that demand for coronavirus-related products, such as face masks, has helped China sell more overseas than expected.
Official, albeit frequently doubted data, showed Chinese exports surprised economists by rising in April and falling less than forecast in May.
China will increase its market share in epidemic prevention supplies, which are expected to continue supporting China's exports should there be a second wave of the coronavirus globally, according to Bruce Pang, head of macro and strategy research at China Renaissance, based on CNBC's translation of his remarks in Mandarin.
Trade figures for June are expected in about two weeks.
"Because of the health crisis in the past several months, we did see a high demand for PPE (personal protective equipment)," James Zhao, general manager of Cainiao's global supply chain, told CNBC last week.
Cainiao, which is Alibaba's logistics arm, anticipates that category will be one of the business' growth areas as it plans rapid expansion in the next three years in a bid to overtake UPS as the top handler of parcels in the world by daily volume.
"We are expecting the demand for PPE will be stable for (the) next several months," Zhao said, citing conversations with the United Nations World Food Programme, which is working with Cainiao for global distribution of medical supplies.
Covid-19 first emerged late last year in the Chinese city of Wuhan. As the disease spread rapidly in the country, more than half of China extended the Lunar New Year holiday shutdown in February in a bid to contain the virus. The economy shrank by 6.8% in the first quarter of the year.
At the time, a surge in domestic demand for face masks and other medical supplies created a shortage, forcing China to repurpose existing manufacturing capacity and increase imports of the goods.
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In March, the spread of the coronavirus stalled domestically while accelerating overseas. On March 11, the World Health Organization declared Covid-19 a global pandemic. This week, the organization said the pandemic is speeding up and "not even close to being over."
More than 514,000 people have died from the disease worldwide, with the U.S. accounting for nearly a quarter of the fatalities. The death toll in China is just over 4,600 people.
As China sought to get its economy up and running again, the spread of the coronavirus overseas and resulting limits on economic activity hit global demand for Chinese products. In U.S. dollar terms, exports overall fell 7.7% in the first five months of the year compared to a year ago, according to official figures. However, exports of medical devices rose 28.5% over that time.
The global demand for Chinese health-care products has encouraged companies to apply for overseas certification.
Beijing-headquartered Genetron, which is developing DNA-based cancer treatments, announced in early June it received emergency-use authorization from the U.S. Food and Drug Administration (FDA) for a coronavirus detection kit. The approval comes just months after receiving the European Union's CE marking, which certifies that a product has met EU standards for health and safety.
"This kit becomes a potential upside to our revenue (in) 2020. (We are in) numbers of discussions at this point," Sizhen Wang, CEO of Genetron, told CNBC in an interview last week. He emphasized that the company, which went public on the Nasdaq on June 19, remains focused on cancer treatments.
Looking to countries outside the U.S.
As tensions between the United States and China continue over trade and technology, many Chinese medical supplies companies are exporting to countries other than the U.S.
In the categories of face masks, ventilators, infrared thermometers and test kits, the China Chamber of Commerce for Import and Export of Medicines and Health Products lists far more Chinese companies that have received Europe's CE marking than FDA or even U.S. emergency-use authorization.
There's no doubt about it, that the health-care sector in China is red hot.Sam RadwanEnhance International
Beijing-based WDM, or Wandong Medical Technology, has exported a few hundred of its mobile x-ray machines for coronavirus detection, the company told reporters in May.
Destinations included Spain and Italy, and countries in Africa, the Middle East and South America, but not the U.S. due to lack of FDA approval, according to WDM. The company said it pursued European certification for this machine, rather than American, based on greater market share coverage.
Long-term uncertainty
The longer-term demand for China's medical supplies is still unclear. So far, the boost to exports overall is also limited since the products still only account for a fraction of that total amount.
"Overseas demand for coronavirus-related medical products may have peaked in late May," Nomura's Chief China Economist Ting Lu said in a note Monday. He predicted that exports will fall 8% year-on-year in June.
On Tuesday, China said manufacturing activity expanded in June with the official Purchasing Manager's Index coming in at 50.9. A number above 50 represents an expansion, while a number below 50 signifies contraction. However, the new export orders index reading of 42.6 was still in contraction territory.
The rush to repurpose factories for coronavirus-related products and pour other resources into Chinese health care generally could also go to waste if supportive government measures aren't implemented in time.
"There's no doubt about it, that the health-care sector in China is red hot. There's a lot of money that is being poured into startups and even existing companies in order to see that these companies shift to take advantage (of major domestic health-care needs)," Sam Radwan of management consultancy firm Enhance International, said in a phone interview.
However, he said, "in my view you can innovate in technology all you want but you're hamstrung by the fact that the infrastructure is just not there."
Source: cnbc.com