Near-term prospects for the Chinese economy look grim, as thousands of factory workers have not returned to resume work in factories following the outbreak of coronavirus. Millions of migrant workers who had gone home to celebrate Chinese New Year are unable or unwilling to return to work due to stringent restrictions on the movement of people and transportation. A survey conducted by the American Chamber of Commerce in Shanghai revealed that while about two thirds of factories in China’s financial hub are poised to resume production, about 80 per cent of workers have not returned. As a result, many factories have extended the ongoing shutdown as workers are not ready to take the risk of return.
Liu Xiaoming, China’s Vice Transport Minister, while confirming the fear prevailing among migrant workers, said less than one third of China’s 291 million migrant workers have returned to work from their home towns, with more than 174 million workers employed outside their home provinces. Meanwhile, local Chinese authorities treat the rural population as potential carriers of coronavirus and hence a threat to public health. This leads migrant workers to prefer to stay home in order to avoid attempts by officials to force them into quarantine. Because manufacturing and service sector employees do not have the luxury of working from home, these sectors have been especially hard hit. Economists speculate that further delay in starting factories will severely affect manufacturing hubs in China.
Stringent curbs on transportation by authorities have not only affected the movement of people but also heavily disrupted the supply chain, thus affecting the most important part of manufacturing, namely procurement. The manufacturing hub of Suzhou, where big companies such as iPhone contractor Foxconn, Johnson and Samsung Electronics are located, has been forced to postpone the resumption of work. According to the China Passenger Car Association, coronavirus has led to a drastic drop in the overall sales of Chinese manufactured cars, with a 20 per cent fall in January 2020 compared to the previous year. This was followed by figures slumping by 92 per cent in the first week of February following the failure in containing the deadly virus outbreak.
Meanwhile, the China Transport Ministry said that the combined number of people who travelled by road, rail and air was 12 million as of February 24, a mere 20 per cent the total travel volume experienced a year previously. This is indicative of sweeping restrictions imposed on all kinds of movement, with Chinese authorities suspending long distance bus services as well as locking down many cities.
Many policymakers and business leaders have raised concerns about China’s management of health security. The concern emanates from China’s high level of integration into the global economic system, from trade and tourism to supply chains and all forms of commerce. A snapshot of industrial activity in China is expected to reveal a plunge in Chinese factory output in February as quarantine efforts to contain the spread of the virus disrupt supply chains, with damaging consequences for companies around the world.
Chinese President Xi Jinping warned in the third weekend of February that coronavirus would have a relatively big impact on the economy and society. Kristalina Georgieva of the IMF, speaking at a G20 meeting of finance leaders and central bank chiefs, warned that the continuing spread of the virus could have dire consequences, especially its economic impact, if the outbreak turns out to be more persistent and widespread. Meanwhile, in Italy, fears are rising of the potential harm to Eurozone growth due to the spread of the virus and at a time when Italy’s economy is already in contraction.
Finally, the International Airlines Group and International Air Transport Association have further warned that falling passenger demand could cost the airline industry $29.3 billion in lost revenues in 2020, with global air travel likely to fall for the first time in more than a decade. To this end, analysts have warned that transport groups, hospitality chains, airlines, luxury goods makers and retailers will be among those hardest hit by the coronavirus as Chinese consumers stay away from shops and travellers put off holiday plans. Tellingly, Jaguar Land Rover warned in February that it could run out of car parts at its British factories by the end of February while Apple sounded the alarm of possible iPhone supply shortages due to the closure of Chinese facilities.
Meanwhile, questions persist as to why Chinese authorities responded the way they did to the early stages of the outbreak:
- Why did it take 40 days from the identification of the first virus case in Wuhan to the point where President Xi declared an emergency?
- Why were a number of doctors in Wuhan who tried to warn about the virus punished?
- Why did Chinese officials seem reluctant to admit the risks?
- Why did party officials continue to plan public New Year events right up to the point of the emergency?
- What is the level of preparedness of Chinese public health authorities for the future outbreak of a similar virus?
Jan Lehman is the pseudonym for an expert in Asian affairs.