Chinese factories are returning, but global supply chain remains uncertain

Scott Tong Apr 28, 2020
Workers in face masks at a car seat factory in Shanghai. Noel Celis/AFP via Getty Images

Chinese factories are returning, but global supply chain remains uncertain

Scott Tong Apr 28, 2020
Workers in face masks at a car seat factory in Shanghai. Noel Celis/AFP via Getty Images

At the startup Wire, which sells and leases electric scooters, the next-generation model is almost ready to ship out from the factory in China. Almost.

“We have like 90% of the components available to us, but there are just a couple of pieces that we can’t get,” said co-founder Nick Drombosky. “All it takes is one missing part to not have a finished product.”

In the manufacturing world, you need everything to make anything. In March 2011, the deadly tsunami that struck eastern Japan took out the one plant in the world that made one ingredient for auto paint. This held up the industry for months.

Drombosky doesn’t actually know when his parts will come in.

“At the end of March, we got emails from pretty much everyone we’ve ever done business with in China,” he said. “It was like a copied-and-pasted message saying, ‘Everything’s great here. The Chinese government’s done an amazing job handling this epidemic, and our factory is fully reopened.’ And then you would email them back saying, ‘OK, can I get this?’ And they’d say, ‘Well, not yet.’ “

“It was like a copied-and-pasted message saying, ‘Everything’s great here … our factory is fully reopened.’ “

Nick Drombosky, Wire co-founder

One limitation may be factory workers, who are overwhelmingly migrant workers from rural China. Some are struggling to return to the plants.

“Either because of transportation disruptions, or in many cases they couldn’t find a place to live,” said Dexter Roberts, journalist and author of The Myth of Chinese Capitalism: The Worker, the Factory, and the Future of the World. “The locals there see them as outsiders and are worried about the virus, and didn’t want them to come back.”

Cranking up the global manufacturing machine is not just about China. A typical car assembled in China contains some 30,000 parts coming in from multiple countries, many still facing the peak of the pandemic.

“If these different countries are in different stages of the disease, have different policies about lockdown, I think these reopenings are not going to be smooth,” said Susan Helper, economist and supply chain scholar at Case Western Reserve University.

Still, many analysts think things could have turned out far worse. Many businesses carried just enough spare inventory. Middlemen put goods on planes instead of ships to speed them to market. And demand for Chinese products fell off when the rest of the world suffered from COVID-19.

Also auspicious: Chinese factories went down for just three weeks or so.

“Had the delay been months as opposed to weeks, I think the impact would have been more acute.”

Shawn DuBravac, IPC economist

“Had the delay been months as opposed to weeks, I think the impact would have been more acute,” said economist Shawn DuBravac of the electronics manufacturing trade group IPC.

DuBravac said every time there’s a manufacturing disruption — from a virus, a natural disaster or a trade war — supply chain professionals learn new lessons. One solution widely discussed is to bring some manufacturing closer to home in key industries like medical supplies.

For now, however, China remains a critical manufacturing hub, given its skilled workforce, experience with foreign investors and world-class highways and ports. Just about every sector has exposure to the world’s second-largest economy.

“If you think you’re immune, you’re operating under a delusion,” said Thomas Derry, CEO of the Institute for Supply Management. “Everyone is exposed. Even if you think you’re not directly impacted, you’re indirectly impacted.”

COVID-19 Economy FAQs

What’s the latest on the extra COVID-19 unemployment benefits?

As of now, those $600-a-week payments will stop at the end of July. For many, unemployment payments have been a lifeline, but one that is about to end, if nothing changes. The debate over whether or not to extend these benefits continues among lawmakers.

With a spike in the number of COVID-19 cases, are restaurants and bars shutting back down?

The latest jobs report shows that 4.8 million Americans went back to work in June. More than 30% of those job gains were from bars and restaurants. But those industries are in trouble again. For example, because of the steep rise in COVID-19 cases in Texas, Gov. Greg Abbott, a Republican, increased restrictions on restaurant capacities and closed bars. It’s created a logistical nightmare.

Which businesses got Paycheck Protection Program loans?

The numbers are in — well, at least in part. The federal government has released the names of companies that received loans of $150,000 or more through the Paycheck Protection Program.

Some of the companies people are surprised got loans include Kanye West’s fashion line, Yeezy, TGI Fridays and P.F. Chang’s. The companies you might not recognize, particularly some smaller businesses, were able to hire back staff or partially reopen thanks to the loans.

You can find answers to more questions on unemployment benefits and COVID-19 here.

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