Coronavirus hitting China’s manufacturing sector worse than Sars

(SCMP) – For Huang Meiyun, deputy manager of a hat manufacturer and retailer from Jiangsu, the coronavirus outbreak could not have come at a worse time.

“Originally we had plans to deliver our products [after the Lunar New Year holiday],” said Huang, who works at Foremost in Nantong, a city 150km north of Shanghai in the eastern Jiangsu province.

“Because of the outbreak, we just couldn’t do it. Customers have been chasing us. It’s not just about orders being cancelled now, we have had to adjust as well [for the delay in production].

“We’ve never encountered this kind of situation before. We have had sufficient orders and things have been running smoothly. It is really the first time, not even during severe acute respiratory syndrome (Sars) [we had to deal with factory closure].”

The outbreak, which has infected more than 60,000 people, has severally hit the manufacturing sector,
with Hubei province, the epicentre of the outbreak which has been under a lockdown, home to almost 11 million migrant workers in 2018, according to the provincial government.

While China has pushed to automate its manufacturing sector, many factories remain relatively labour intensive, and factories such as Foremost are becoming wary of cash flow issues having lost orders.

“Right now we can afford to pay up to four months of wages,” Huang added. “But if it gets worse, we may be only able to pay the basic rates for a little bit longer. I hope the situation will be improve as soon as possible.”

The central government extended the Lunar New Year holiday until the start of February, but last week signalled that it was keen for economic activities to return to normal.

However, local authorities across the country have been taking no chances in curbing the outbreak of the virus, which has claimed over 1,300 lives, by shutting down factories, closing off residential complexes, blocking roads and imposing mandatory quarantine restrictions on outsiders.

The Jiangsu government asked businesses not to resume operation until the start of this week, and two factory owners in the province were reprimanded for asking employees to return to work before the date, according to local media reports.

Factories and offices are now trying to prepare to make up for lost time, and while Foremost is allowed to operate, it has not been able to return to full capacity because of restrictions on workers from outside Nantong.

“We started with about 30 per cent of our workforce, right now I’d say we have 80 per cent of employees that have returned to work, about 1,000 people. We all have to wear masks during work unless it’s lunch,” Huang said.

Foremost, which started its hat manufacturing business in 1996, currently has around 1,200 employees and counts companies like Kangol among its clients. In recent years, the company also begun selling products under its own brand to tap into China’s growing consumption power.

Huang said while most of their employees live locally in Nantong, because there were travel restrictions on people from outside the city, hundreds of other employees living within the wider Jiangsu province have not been able to travel back to the city.

“And we have around nine employees in Hubei, they are still there,” she said.

Sibiao Chen, chief operating officer at SellerMotor, a cross-border e-commerce analytics company, said that a majority of retailers who sell internationally have been affected by delays in production.

“This is because almost none of the manufacturers are back at work,” Chen said. “We are seeing a surge in out of stock [items],” he said.

While larger sellers are not as affected, small to medium-sized retailers that sell overseas will hold inventory for up to one and half months before the Lunar New Year holiday, and that stock is running out, Chen said.

A report published by Macquarie this week also suggested that the manufacturing sector is yet to be return to normal.
“Other than Hubei province which will restart on February 14, the rest of the country was supposed to return to work on February 10. But daily passenger transit has been down over 80 per cent year-on-year since the Lunar New Year, suggesting that the majority of workers have not returned to work yet,” noted the Macquarie report.