Chinese factories that make the world’s smartphones, toys and other goods are struggling to reopen after a virus outbreak idled the country’s economy. But even with the ruling Communist Party promising help, companies and economists say it may be months before production is back to normal. The problem is supply chains the thousands of companies that provide components, from auto parts to zippers to microchips.
China’s are famously nimble and resourceful, but they lack raw materials and workers after the most intensive anti-disease measures ever imposed closed factories, cut off most access to cities with more than 60 million people and imposed travel curbs.
In smartphones, an industry that relies on China to assemble almost all its handsets, some components suppliers say production is as low as 10% of normal levels.
What Lies Ahead
- There will be further impact, and the impact is going to be severe.
- Brands including Apple Inc. say coronavirus outbreak has started disrupting their supplies.
- Analysts warn the longer that disruption lasts, the more damage will spread to wider industries and other economies.
Global Brands ’Dependence on Cheap Chinese Labour
Global brands have used low-cost Chinese labor to assemble goods for three decades. Now, they increasingly depend on China to supply auto, computer and other components. So, disruptions can make this country a bottleneck, choking off their sales. The most optimistic forecasts call for bringing the virus under control by March, allowing manufacturing to rebound. Gloomier outlooks would have the outbreak lasting through mid-May or later. Or, as the World Health Organization warned this week, authorities might fail to stop its global spread. Automakers and other factories are reopening, but analysts say they won’t restore normal production until at least mid-March.
What China is doing to Control the Damage
President Xi Jinping has put his personal authority behind reviving industry. Beijing is promising tax cuts, though economists say financial help will have limited impact when anti-disease controls still in effect are still keeping workers away from factories and disrupting the movement of goods. On Sunday, Xi said “low-risk areas” should change disease-control measures to fully restore production while high-risk areas focus on fighting the epidemic.
The government of Yiwu, a southeastern city known for its thousands of suppliers of buttons, doorknobs and other components to export manufacturers, says it arranged planes and trains to help their employees get back to work.
China accounts for about one-quarter of global manufacturing when measured by the value added in its factories. But it is the final assembly point for more than 80% of the world’s smartphones, more than half of TVs and a big share of other consumer goods. Apple, which has most of its iPhones and other products assembled by contractors in China, rattled stock markets when it warned Feb. 17 that revenue would suffer due to supply disruptions.