BOFIT Viikkokatsaus / BOFIT Weekly Review 2020/08

The Chinese are gradually returning to work outside Hubei province, but workplaces in Hubei will remain closed at least for the rest of the week. The resumption of production in most Chinese provinces gradually got underway last week (Feb. 10). Restarting production plants has been complicated, however, by the need for inspections, permits and issuance of protective gear. The conditions and guidance provided by local authorities varies considerably across provinces.

Travel restrictions and quarantines prevented China’s internal migrant workers from returning to the workplace after their Lunar New Year's holidays. China’s Ministry of Transport reports that only about a quarter of the scheduled 300 million holiday return journeys occurred last week. About a third of migrant workers are unable to return to work until March. About half of China’s 1.4 billion population are currently subject to some restrictions on movement. Passenger numbers (road, rail, air and ship) within China are down 80 % from a year ago. Overseas airlines have suspended their China flights until the end of March or April. The suspensions also apply to cargo shipments.

The drop in economic activity is reflected in roughly 40 % lower coal consumption at large energy plants. A survey of China’s main ports found that capacity utilization rate at China’s large ports was off by 20–50 % from normal times.

The situation has also significantly impacted foreign companies operating in China. The American Chamber of Commerce in Shanghai surveyed its members during February 11–14. The responses by their member companies in the city and surrounding areas provides interesting insights into the effects of the epidemic. Almost half of responding companies said the coronavirus epidemic has already disrupted their international production chains. 78 % of respondents said they were suffering from labour shortages. Many companies also reported a lack of personal protective equipment for their employees.

Another survey performed between February 7 and 14 by Business Finland, the Finnish government’s trade promotion agency, asked about the impact of the coronavirus epidemic on Finnish companies. 39 % of responding companies said they expect a negative impact on net sales over the next six months. About a fifth of respondents said they have already felt shortages of raw materials or components. Although the vast majority of respondents were small businesses, a quarter said they had already made or planned to make changes in their supplier networks.

The crisis has awakened awareness at many companies and in many industries as to the extent of their China dependence, and has forced them to consider diversifying their production chains. Some branches have long been involved in moving production chains outside China due to rising production costs and this trend was accelerated by the punitive tariffs imposed amidst the China-US trade war.

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