Chinese businesses take stock a year after their pandemic pivot
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Almost a year ago, China shut down much of its economic activity to contain the outbreak of the COVID-19 virus.
Streets were emptied and most industries, except for essential services, were shut for months.
The lockdown measures were strictest in central Hubei province, where the virus outbreak first began.
“Hubei was entirely sealed. No one could enter or leave,” resident Liu Yi said.“We weren’t even allowed to step outside the front door.”
No government subsidies
The strict pandemic controls lasted for two months, during which Liu received no income. He sells ingredients to bubble tea and fruit tea shops, which did not get subsidies from the Chinese government. Citizens did not receive cash handouts.
Since Liu lives in an area where face masks are being made, he figured he could invest in personal protective equipment.
“I partnered with a couple of friends to open a factory making melt-blown fabric,” he said.
Melt-blown fabric is the crucial layer in surgical masks that blocks tiny infectious particles. It is hard to manufacture ones that filter 95% of small particles. This is the reason there have been shortages of top-grade medical masks, the N95s, during this pandemic.
Liu hired workers and invested 1.2 million yuan ($185,000) in a melt-blown fabric machine from the Chinese firm Demark.
“I thought I could recover the costs within a year without a problem,” he said. “I knew the high profit margins wouldn’t last long.”
But for weeks, the machine would barely run, and when it did, the melt-blown fabric came out hard and brittle. It was virtually unusable for medical face masks.
Demark machine problems
Further east in Anhui province, Qian Wensheng had retooled his brush factory to produce face masks but was having problems with the same machine as Liu.
Within a month, the machine’s hot-air fan, mold, air compressor and the core part, called an extruder, had to be replaced.
“At first, we thought the problem was with the commissioning of the machine, but I finally realized the machine could not produce fabric with a 90% filtration rate, let alone 95% as the manufacturer promised,” he said.
“The thickness was uneven, and there were even small holes in the fabric.”
A 95% filtration rate is necessary for use in N95 face masks. There were bigger profit margins selling N95s once the U.S. and other countries went into lockdown last spring.
The machine manufacturer, Demark, did not respond to Marketplace’s request for comment.
However, Demark’s general manager told local Chinese media that the firm has never promised its machine would make melt-blown fabric suitable for N95 masks.
He admitted there have been some problems with a small number of machines.
While Demark does not specialize in ones making melt-blown fabric, both Liu and Qian both said they had no doubts buying from the company.
“On March 30, 2020, a senior Communist Party official from Zhejiang province visited the firm, Demark, and encouraged the company to produce qualified products to combat the pandemic,” Qian said.
“We saw this as an endorsement from the local government itself.”
Qian said he expected the government would step in to help machine buyers. Instead, he said he is under government surveillance and was called by the police over the matter.
“This is an act of intimidation,” he said. “I will not give up. This is not fair.”
When Marketplace reached out to other machine buyers, another man said he had been contacted by the police.
“The officer said don’t accept media interviews,” the machine buyer said. “This is a business dispute. Why are the police interfering? What does it have to do with them?”
“As the Lunar New Year approaches, maybe I will have to sell my apartment. I have no other choice.”Bubble tea supplier Liu Yi
The county government did not respond to Marketplace’s request for comment, but an official with the publicity department of Changxing County told a local media outlet that it had already punished Demark for exaggerated advertising over its melt-blown fabric machine.
Another Communist Party secretary from Changxing County, where Demark is based, also laid blame on the machine buyers, many of them new to the face mask sector, for making “blind investments” without checking that the market standards had been upgraded.
Between May and August, many customers showed up at the company’s doorstep to complain, including Qian.
“Hundreds of people had the same experience as me. It was a trap by Demark through and through. This is a company of fraudsters,” he said.
One machine buyer was caught on video by a local media outlet threatening to jump from a building window.
“I cannot wait any longer for the company to keep delaying these talks,” the man said. “I’ve not sold anything for weeks!”
Time was ticking.
At the start of the pandemic, face masks were in such short supply, even melt-blown fabric with lower filtration rates were snapped up.
Given that other factories producing nonessential products were sitting idle, thousands of companies flooded the market to make face masks, including electric automaker BYD, backed by Warren Buffet, Apple iPhone maker Foxconn, oil producer Sinopec, air-conditioner brand Gree, as well as clothing and diaper manufacturers.
At the same time, China raised the standards for masks after the United States and other countries complained of substandard Chinese products.
Thus, the price of face masks started to plummet.
“At its height in April, top medical-grade masks like KN95 [China’s version of N95s] were sold at 6 yuan ($0.90) a piece,” Qian said. “Today, it sells for less than a 50 mao ($0.08) a piece, so, we’ve stopped producing masks.”
“Hundreds of people had the same experience as me. It was a trap by Demark through and through. This is a company of fraudsters.”Manufacturer Qian Wensheng
Qian and others are trying to sue the machine company for a refund but are having trouble getting the case heard by the courts.
As for Liu, he spent his life savings and is now 400,000 yuan ($62,000) in debt.
Liu is back to sourcing ingredients for bubble tea and fruit tea shops, which brings in enough money to cover the interest on his bank loan. He also owes money to family and friends.
“As the Lunar New Year approaches, maybe I will have to sell my apartment,” he said. “I have no other choice.”
Liu said he wishes he bought the machine from a different company but does not regret taking a gamble during the pandemic.
“Chinese people are very good at learning new skills. We have passion in our hearts. Now I’m fully skilled as a technician in the melt-blown fabric industry,” he said. “The problem is the market is no longer there.”
Additional research by Charles Zhang
COVID-19 Economy FAQs
What are the details of President Joe Biden’s coronavirus relief plan?
The $1.9 trillion plan would aim to speed up the vaccine rollout and provide financial help to individuals, states and local governments and businesses. Called the “American Rescue Plan,” the legislative proposal would meet Biden’s goal of administering 100 million vaccines by the 100th day of his administration, while advancing his objective of reopening most schools by the spring. It would also include $1,400 checks for most Americans. Get the rest of the specifics here.
What kind of help can small businesses get right now?
A new round of Paycheck Protection Program loans recently became available for pandemic-ravaged businesses. These loans don’t have to be paid back if rules are met. Right now, loans are open for first-time applicants. And the application has to go through community banking organizations — no big banks, for now, at least. This rollout is designed to help business owners who couldn’t get a PPP loan before.
What does the hiring situation in the U.S. look like as we enter the new year?
New data on job openings and postings provide a glimpse of what to expect in the job market in the coming weeks and months. This time of year typically sees a spike in hiring and job-search activity, says Jill Chapman with Insperity, a recruiting services firm. But that kind of optimistic planning for the future isn’t really the vibe these days. Job postings have been lagging on the job search site Indeed. Listings were down about 11% in December compared to a year earlier.