Business

China’s factories reopen, only to fire workers as virus shreds global trade

BEIJING: Shi Xiaomin, who used to export suits and blazers by the thousands to South Korea, the Netherlands and the United States, was luckier than many other Chinese factory owners.

When his factory in the eastern city of Wenzhou reopened last month after an extended shutdown due to the coronavirus outbreak, the local government sent a bus to a nearby province to ferry back more than 20 of his stranded workers. Staff with cars volunteered to fetch colleagues.

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Shi's optimism was short-lived.

In the past week, requests to cancel orders or delay shipments from his European and US clients have flooded in.

Early in the outbreak, China imposed tough travel restrictions and factory suspensions to curb the spread of the virus, squeezing labour supplies and sending exporters scrambling to fulfil orders.

READ: Hubei lockdown lifted, but exodus from Chinese city hindered by new COVID-19 swab test rule

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Now, the reverse is happening – overseas orders are being scrapped as the pandemic ravages the economies of China's trading partners.

"The unprecedented shutdown of normal economic activity across Europe, the US and a growing number of emerging markets is certain to cause a dramatic contraction in Chinese exports, probably in the range of a 20-45 per cent year-on-year drop in the second quarter," said Thomas Gatley, senior analyst at research firm Gavekal Dragonomics.

Shi said his fabric supplier in hard-hit Italy suspended operations on Sunday, meaning no fresh raw materials from May. His stockpile of fabric will last until the end of April.

READ: COVID-19 death toll passes 20,000, three billion under lockdown

Shi said he would slow production and might suspend all output soon if business does not improve.

He also told the 50-odd workers who have yet to return from Hubei province, the epicentre of the outbreak in China, to find jobs elsewhere.

"We know this year is bad and next year would be better, but the question is how many factories can make it to next year?" Shi said.

SLUMPING EXPORTS

Economists had initially anticipated a V-shaped recovery for China's economy, similar to that seen after SARS epidemic in 2003. But analysts have since slashed their forecasts to levels not seen since the Cultural Revolution ended in 1976.

China's net exports accounted for 11 per cent of economic growth last year.

"The last overseas orders we received were for April," said Zhu Hongping, chairman of Hangzhou Hongli Food, a supplier of precooked food to restaurants in Japan, South Korea, Australia and New Zealand.

Normally, at this time of the year, orders can stretch to June and July, Zhu said, adding he may have to suspend production in three months.

This photo taken on Mar 25, 2020 shows an employee working on an air conditioner production line at a Midea factory in Wuhan in China's central Hubei province. (Photo: STR/AFP)

Even when they do have orders, exporters are worried about constantly changing restrictions countries have adopted to curb the spread of the virus.

"Even if we finish the products, we don't know if the countries we are shipping to will be locked down," said Yi-Cheng Sung, who helps manage a factory that produces makeup brushes and accessories in Shenzhen.

On Tuesday, state-owned Securities Times reported Good Will Watch Case Manufacturing, a supplier to the US watch brand Fossil, would put its more than 600 workers on leave for at least three months.

UNEMPLOYMENT

China's manufacturing sector, accounting for about 40 per cent of gross domestic product and over 20 per cent of jobs, was already suffering from the US-China trade war.

More big layoffs would be a concern for the ruling Communist Party and its focus on social cohesion and economic stability, particularly in a year when Beijing aims to double GDP and disposable incomes from a decade ago.

China's urban joblessRead More – Source