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China’s Factories Are Reeling From Forced Coronavirus Closures

HUAIBEI, CHINA - FEBRUARY 21 2020: Workers make medical isolation gowns in a sterilized workshop of a garment factory in Huaibei in central China's Anhui province Friday, Feb. 21, 2020.- PHOTOGRAPH BY Feature China / Barcroft Studios / Future Publishing (Photo credit should read Feature China/Barcroft Media via Getty Images) BARCROFT MEDIA VIA GETTY IMAGES

Beijing (Forbes) - China mandated factory shutdowns across most of its provinces last month as it struggled to control a new coronavirus epidemic that started in its central metropolis of Wuhan. Factories were supposed to remain closed for another 10 days after the weeklong Lunar New Year holiday and reopen on February 9.

When that day arrived, Cui Kexu, like thousands of factory owners across China, was waiting for an official green light to restart production. None came. Almost two weeks after the official reopening date, many factories across China remain shuttered, raising concerns about the long-term effects on the country’s manufacturing sector from the epidemic that has so far killed more than 2,400 people and infected more than 76,000.

Managers and entrepreneurs complain about unequal and conflicting regulations across the country. While Beijing has stressed that it wants to restart the economy, pledging tax cuts and other forms of aid to industries harmed by COVID-19, local regulations are preventing factories from reopening. Thus companies find themselves stuck between the necessity of keeping their employees safe and staying in business.

For example, local authorities in southwest China are requiring that factories provide two masks daily for every worker and show a stash of two weeks’ worth of masks in order to resume operations, said Paul Sives, chairman of the European Chamber of Commerce in Southwest China. These requirements are almost impossible to meet, he says, because masks have sold out across the country. Thus, out of about 50 companies in an industrial cluster outside the metropolis of Chengdu, only five are currently operating, Sives said during an online media roundtable on Tuesday.

“The magnitude of the challenge is huge,” said chamber president Joerg Wuttke, adding that trying to ship goods out of the country during this period is “a logistical nightmare.”

“Bureaucracy and confusion are the main words we hear from our members,” said Carlo D'Andrea, chairman of the chamber’s Shanghai chapter. He said office buildings in Shanghai are refusing to turn on the air conditioning due to fears the coronavirus can be spread through the ventilation system. The temperature inside offices can drop below 15 degrees Celsius, prompting refusals from employees to go to work because they are afraid they’ll get sick. If workers develop a fever, they’ll be restricted from using public transportation or entering supermarkets, among other things. Body temperature is being checked at the entrance to all these places.

Sives said if the situation continues for another month or two, it will devastate small businesses.

Cui, who owns a factory that mass-produces various types of wine and barley wine in the southern Yunnan province bordering Vietnam, says under normal conditions, his business can survive without operating for about six months. What complicates the situation is that his warehouse has also been shuttered, making it impossible to ship the inventory.

“We are looking forward to returning to work as soon as possible,” Cui says. He is, however, supportive of the government’s measures to curb the spread of the virus. He believes in the long run, the coronavirus-related company closures will have only a mild effect on the economy. “But in the first quarter, it will definitely be quite significant,” he says.

Sun Lijian, director of the Financial Research Center at Fudan University in Shanghai, says it is difficult to predict the long-term impact of the coronavirus outbreak on China’s economy. Key factors are how quickly the outbreak will be contained and how soon consumers’ optimism can recover. In the month since the COVID-19 epidemic escalated, people in China have bought little besides daily necessities and products intended to keep them safe from the virus, Sun says. Case in point, retail sales of passenger cars in China plummeted 92% year-on-year in the first 16 days of February, according to the China Passenger Car Association (CPCA).

China’s economy was already under pressure from the two-year-old trade war with the U.S., which saw companies in China start to shift production to Southeast Asian nations in pursuit of lower costs and to avoid the U.S.-China tariffs. The coronavirus crisis has highlighted for foreign companies the dangers of keeping all of one’s “eggs in one basket,” Wuttke said.

Some observers see the coronavirus outbreak as the tipping point in the ongoing downturn of China’s manufacturing sector. Liu Kaiming, head of the Institute of Contemporary Observation, which studies working conditions in factories across China, told the South China Morning Post that if the situation doesn’t calm by March, then “China’s supply chains and status as the ‘world’s factory’ could fall off a cliff”.

But others bank on the country’s resilience and on Chinese consumers’ readiness to help boost the economy if prompted by the government.

“If there is political commitment at the top combined with the natural commercial instinct of the private sector, then all obstacles standing in the way of ramping up production would just be cleared away,” says Richard McGregor, an analyst at the Sydney-based Lowy Institute. “China is best at mobilization. If they need to mobilize the economy, then they’ll do it.”

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