Coronavirus threatens to disrupt the work of China’s large manufacturing enterprises and its global supply chains, as the spread of infection and stringent public health measures are forcing companies and workers to remain unemployed.
The most important day off in China was to end on Friday, when many companies planned to return to work after a week-long holiday related to the lunar new year, but authorities ordered enterprises in many areas to stay closed longer in an attempt to contain the disease.
At the same time, widespread travel restrictions mean that millions of migrant workers may not be able to return to what is often called the production hall in the world.
The World Health Organization on Thursday announced an outbreak of a health emergency around the world, as the death toll in China reached more than 200 people, more than 9,000 people were infected.
Brian Miller, owner of Easy China Warehouse and a Bluetooth device company in the southern city of Shenzhen, said that disruptions in production and production can spread across supply chains, from raw materials to final assembly.
“If we can’t get back to production fast enough, I’ll run out of supplies and I will have a few months when we can’t sell anything.” And this is a disaster that we don’t want, ”Miller told Reuters.
In Suzhou in East China, one of the country’s largest manufacturing centers, companies were ordered to remain closed until at least February 8th, and in Shanghai until February 9th. Factories in the southern Dongguan manufacturing center in Guangdong’s export-oriented province will also be closed by February 10th.
The threat of significant disruption arises from the fact that China is already experiencing the biggest shift in the supply chain for a generation, as companies are faced with the consequences of the Sino-US trade war and a slowdown in economic growth.
A woman named Chen, who is a co-owner of a garment factory in Huizhou, Guangdong, described the virus and the stop as “frost on top of a snowfall.”
Her domestic-oriented factory has already fired nearly half of its workers from 70 to 40 due to a slowdown in the economy, and she fears that more jobs could be lost in the coming months.
“This outbreak is definitely causing great damage to our business, as everyone will worry about the revival of the virus, even if it is curbed,” she said.
The shock risk for business and consumer activity prompted one Chinese government economist to predict that economic growth could drop to 5% or less, from 6.1% in 2019. During the SARS epidemic in 2002-03, growth fell by two percentage points, but recovered quickly as soon as this outbreak was controlled.
“The worst part is that there is uncertainty … Whole supply chain links can stop,” said Nicole Pan, vice president of mobility at Canalys, an IT research firm.
Coal mines in Inner Mongolia and Shanxi, the two leading coal-mining regions, were ordered not to resume full-scale production until at least February 9, although some workers believe the shutdown could go on longer.
A liquefied gas merchant in Tangshan in the northeastern Hebei province said truck drivers were supposed to return on Thursday, but no one had returned.
While some steel mills in Hebei, China’s main steel mill, were still operating due to the enormous costs of shutting down and restarting, some workers were advised to stay home until February 9, as “no one wants to take risks,” the manager said, acquiring in a medium sized mill.
A growing number of multinational companies are warning of damage to their business, and companies such as Starbucks Corp and Levi Strauss are closing many outlets in China.
Many airlines have also suspended or reduced the number of flights to China, which, according to Miller, could disrupt air travel.
Some industry veterans believe the virus could be the last straw for companies doing business in China. Labor and maintenance costs were already rising steadily before the trade war brought higher tariffs.
“You don’t know how many employees will return, and you don’t know how many suppliers in your supply chain are affected,” said Larry Sloven, president of Capstone International HK Ltd, who has been doing business in China for over three decades delivering supplies to major US retailers.