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 do I need to know about tax season this year?

Glad you asked! We have a whole separate FAQ section on that. Some quick hits: The deadline has been extended from April 15 to May 17 for individuals. Also, millions of people received unemployment benefits in 2020 — up to $10,200 of which will now be tax-free for those with an adjusted gross income of less than $150,000. And, for those who filed before the American Rescue Plan passed, simply put, you do not need to file an amended return at the moment. Find answers to the rest of your questions here.

How long will it be until the economy is back to normal?

It feels like things are getting better, more and more people getting vaccinated, more businesses opening, but we’re not entirely out of the woods. To illustrate: two recent pieces of news from the Centers for Disease Control. Item 1: The CDC is extending its tenant eviction moratorium to June 30. Item 2: The cruise industry didn’t get what it wanted — restrictions on sailing from U.S. ports will stay in place until November. Very different issues with different stakes, but both point to the fact that the CDC thinks we still have a ways to go before the pandemic is over, according to Dr. Philip Landrigan, who used to work at the CDC and now teaches at Boston College.

How are those COVID relief payments affecting consumers?

Payments started going out within days of President Joe Biden signing the American Rescue Plan, and that’s been a big shot in the arm for consumers, said John Leer at Morning Consult, which polls Americans every day. “Consumer confidence is really on a tear. They are growing more confident at a faster rate than they have following the prior two stimulus packages.” Leer said this time around the checks are bigger and they’re getting out faster. Now, rising confidence is likely to spark more consumer spending. But Lisa Rowan at Forbes Advisor said it’s not clear how much or how fast.

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