New Coronavirus Puts Manufacturing to the Test... Global Supply Chains Face Disruptions

[Image source=Reuters Yonhap News]

[Asia Economy Beijing=Special Correspondent Sunmi Park, Reporters Hyunjin Jeong, Hyunwoo Lee] The novel coronavirus infection, which is raging in China, has turned on a "red light" not only for Chinese manufacturing but also for the global manufacturing and logistics industries that heavily depend on China.

According to the Chinese government and industry on the 5th, manufacturing factories in China will be unable to operate on time until the 9th as a measure to prevent the spread of the novel coronavirus. Factories in 14 provinces in China, which account for 70% of China's total gross domestic product (GDP), have been ordered to suspend operations until the 9th, except for food, pharmaceuticals, and daily necessities. About 80% of factories receiving export orders in these 14 provinces are also unlikely to open until the 9th.

In places including Hubei Province, some factories are postponing the suspension period beyond the 9th, leading to a prevailing outlook that normal operations in China's manufacturing sector will be impossible for the time being. Leonard Anjoram, CEO of Sopest, a consulting firm specializing in manufacturing, explained to the South China Morning Post (SCMP), "Due to the lockdown in Hubei Province, it is difficult not only to obtain parts but also to find workers, making it hard for many factories in China to open for the time being."

As Chinese manufacturing factories close, the global manufacturing and logistics industries that rely on China are facing urgent challenges. A recent survey conducted by the American Chamber of Commerce in Hong Kong among its member companies found that over 80% of respondents reported significant impacts from the novel coronavirus. Eighty-seven percent explained that employees' work arrangements have been adjusted due to the virus. Nick Martlett, director of logistics company CBIP Logistics, stated, "Trade involving China has been severely hit by the novel coronavirus, and our logistics services have effectively come to a halt."

There is also skepticism about whether companies manufacturing finished products in Southeast Asia using parts made in China will be able to receive parts on time after the 9th. Capstone International, a U.S. lighting company that recently moved its production plant to Thailand but still sources parts from China, said, "All our parts factories in China have closed. No one can predict what will happen for the time being, and there are no countermeasures." Global credit rating agency DBRS warned, "There is a possibility that the global supply chain could collapse due to the novel coronavirus."

The global automotive industry, which heavily depends on Chinese parts, must even consider poor performance in the first half of the year.

According to the Nihon Keizai Shimbun, the global automotive industry's parts inventory averages about one month's supply, but due to the impact of the novel coronavirus, some automobile factories reportedly have only about a week's worth of parts left. Chinese auto parts factories, which had been closed since the 24th of last month for the Spring Festival (Chinese New Year) holiday, have extended their closure until the 9th due to the spread of the novel coronavirus, exacerbating parts shortages. Major automakers, including U.S. manufacturers, are known to rely on Chinese parts factories for more than 20% of their total parts.

Experts predict that if the suspension of parts supply lasts longer than expected, it could lead to poor performance in the automotive industry. Market research firm Bernstein Research forecasts that major automakers such as Volkswagen and BMW will see their sales to China decrease by at least 5% during the first half of this year. Nomura Securities warned that if restrictions on entry and exit to China continue, the risk of disruption in the automotive parts supply chain will increase significantly.

This content was produced with the assistance of AI translation services.