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Coronavirus: Manufacturers face logistical challenges as China moves back to normalcy

Coronavirus updates: The problems are exacerbating pain inflicted by loss of business from the U.S.-China trade war and present huge logistical challenges as companies grapple with a myriad of restrictions that differ by province, city and local district

twitter-logo Reuters        Last Updated: February 20, 2020  | 12:30 IST
Coronavirus: Manufacturers face logistical challenges as China moves back to normalcy
Some smaller firms, particularly in Southeast Asia and reliant on supplies from China, are having to make tough decisions

Blocked highways. Stranded workers. Dwindling supplies. Shipping and air freight companies also hamstrung. The Chinese manufacturing engine that powers much of the world economy is struggling to restart after an extended Lunar New Year break, hindered by travel and quarantine restrictions imposed to curb the coronavirus epidemic and still in place in many parts of the country.

Case in point: In the southern China manufacturing hub of Dongguan, a factory that makes vaporizers and other products had just half of its workforce of 40 last week and was struggling to function without key personnel. "The quality inspectors, they're all out," said Renaud Anjoran, who runs the factory. "One is stuck in Hubei, the other is in an area with no transportation open." Anjoran said other Dongguan manufacturers were also scrambling with half their normal staff levels, with some having even less than that.

The problems are exacerbating pain inflicted by loss of business from the U.S.-China trade war and present huge logistical challenges as companies, many dependent on migrant workers, grapple with a myriad of restrictions that differ by province, city and local district. Apple Inc (AAPL.O) on Monday rescinded a quarterly sales target made just weeks ago, saying the ramp up of factories in China was slower than anticipated. Hyundai Motor Co (005380.KS) and Nissan Motor Co (7201.T) have had to suspend some production - not just in China but also at home - for lack of parts.

Some smaller firms, particularly in Southeast Asia and reliant on supplies from China, are having to make tough decisions. Taiwan's Sica New Materials abruptly shut its factory in Thailand at the end of January, laying off about 350 workers. "They couldn't produce because raw materials weren't being sent from China," said Pairote Panthakarn from the government's welfare and labour protection office in Kanchanaburi province, where the factory is located. Sica New Materials did not respond to a request for comment.

Sinoproud Cambodia Garments Co Ltd, whose customers include fashion retailer Zara's parent Inditex (ITX.MC), told Reuters it may scale back production as stocks of fabric were getting low. "We hope we get the product in March and if we don't get the product in March, we might just have to cut back and put the workers on half pay," said general manager Tu Ailan. Nearly half of 109 U.S. companies responding to a poll by Shanghai's American Chamber of Commerce said plant shutdowns have already had an impact on their supply chains, while almost all of the remainder expect an impact within the next month.

The outbreak, slow pace of business resumption and its impact on the global economy is set to dominate discussions at this weekend's G20 meeting of finance ministers and central bank governors in Riyadh, though Chinese counterparts will not attend as they focus on efforts to limit the fallout. The coronavirus, described by IMF Managing Director Kristalina Georgieva as a global health emergency and "our most pressing uncertainty" is set to knock 0.5 percentage points off global growth in the first quarter for a growth rate of 2.5%, Morgan Stanley economists estimate. They predict China's GDP will expand just 4.2 per cent in the quarter from a year earlier, down from 6% in last quarter.

Also read: What's the impact of coronavirus outbreak on India? It's a mixed bag

Also read: Coronavirus: Paracetamol prices rise by 40% amid outbreak of deadly virus

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