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China’s cogs in the global supply chain are struggling to restart

Global supply chains look to be suffering longer-than-expected disruptions tied to coronavirus as China’s government tries to nudge idled factories back to work to limit the damage to the world’s second-largest economy.

To contain the crisis, Chinese authorities have ordered city lockdowns and extended holidays but the human impact is unrelenting, with deaths topping 1,000. The economic fallout could extend well into March with rising numbers of bankruptcies, increasing layoffs and worsening demand, according to economists at Nomura in Hong Kong.

Bloomberg is reporting that thousands of businesses are in limbo, waiting to hear from local authorities on when they can resume operations. Even when they get the all-clear, it might take days to get back to full staff because many workers who went home for the Lunar New Year holidays are stuck there because of travel restrictions.

The government expects that 160 million more people will return to work between now and  Feb. 18, the transport ministry said Tuesday. That’s about the size of the entire American workforce.

The impact to China’s economy will be short term and won’t derail its longer-term improvement, CCTV reported Monday, citing President Xi Jinping. China will strengthen controls on economic operations and monitor employment to avoid large-scale layoffs, it said. Chinese policy makers will likely roll out more measures to support the economy.

Regions less hit by the outbreak should accelerate the resumption of production, according to a national televised conference held by Ministry of Industry and Information Technology. Bigger enterprises should make up for lost production and ensure provincial targets are met. It is “very urgent” to resume industrial production and stabilize expectations, the government said.

Goldman Sachs, UBS and Macquarie are among those cutting their growth forecasts for both the first quarter and the full year. According to Bloomberg Economics, “the combination of rising cases and extreme prevention measures seems set to guarantee a significant drop in first-quarter GDP growth,” and “our scenario analysis flags the risk of a slowdown to 4.5%.”

The risks are rippling beyond the Chinese economy, particularly with global production of automobiles and electronics. Companies including Nissan, Hyundai and Kia Motors have already slowed output. And this was just reported Tuesday: A car-parts supplier became one of the earliest known companies to obtain a “force majeure” certificate in China that may help it avoid penalties for breaching contract obligations for circumstances beyond its control.

Charting the Trade War

The Trump administration is changing a key exemption to America’s trade-remedy laws to make it easier to penalize about two dozen so-called developing countries including China, India and South Africa. The U.S. narrowed its internal list of developing and least-developed countries in order to reduce the threshold for triggering a U.S. investigation into whether nations are harming U.S. industries with unfairly subsidized exports.



© Bloomberg
The author’s opinion are not necessarily the opinions of the American Journal of Transportation (AJOT).

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