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China’s factories try to get back to normal as virus persists. But it’s far from business as usual

Two weeks after the Lunar New Year holiday was originally supposed to end, Chinese businesses are still getting up to speed as the country deals with disruptions from a highly contagious virus.
The new coronavirus that began to grab national attention in mid-January has killed more than 1,300 people in mainland China. More than half of the provinces delayed the resumption of work from the first week of February by at least a week in an effort to keep people from interacting and spreading the virus.
In many places, businesses were scheduled to resume work this past Monday, but a variety of data indicates progress has been slow as the virus remains an unresolved concern. Many local governments have also imposed strict restrictions on entering certain areas and requiring quarantines of at least two weeks for people who have returned from out-of-town.
“The lockdown measures, together with the substantial extension of the (Lunar New Year) holiday, have significantly delayed resumption of business and production,” Ting Lu, chief China economist at Nomura, said in an email Friday.
He noted that given unique factors in China’s political economic system, many local government officials are making containment of the virus the top priority. “Poor coordination among local governments leads to excessive roadblocks which result in logistical nightmare for most enterprises,” Lu said, adding that there’s still a severe shortage of the face masks needed for employees to resume work at factories and offices.
In other cases, people are working from home. Shenzhen-based Tencent extended its work-from-home mandate until the end of Friday, Feb. 21. Beijing-based artificial intelligence company Megvii has told employees to work remotely until Monday, Feb. 17.
Here’s a look at what some data indicates about China’s economic activity so far:
Daily power coal consumption of six major power generation groups on Wednesday was 42.2% lower from the same post-Lunar New Year holiday period last year, Morgan Stanley economist Robin Xing and his team pointed out in a note Thursday. That’s up 3% from the prior day.
As of Monday, work had resumed at just over half, or 57.8%, of coal mines, according to data from 22 key provinces disclosed by Cong Liang, secretary general, member of the leading party group of the National Development and Reform Commission.
The number of people who have returned to major Chinese cities remains at about a quarter what it was a year ago, according to Lu’s analysis of data from Baidu, an operator of a major map app and other apps. Cities with a low return rate include Guangzhou, the capital of China’s largest province by exports.
The Lunar New Year marks a rare period of the year in China when the majority of businesses are closed and millions of people return to their hometowns for about a week or more. This year, authorities have encouraged people to stay put or return to their places of work in phases.
“Even though a significant share of China’s manufacturing plants have resumed operation this week, many plants are still operating at far below capacity due to labor force shortages,“ Rajiv Biswas, APAC chief economist at IHS Markit, said in an email Friday.
“Many migrant workers have still not been able to return to their workplace due to lockdowns of some cities as well as quarantine requirements for workers moving from one town to another,” he said. “This is likely to heavily disrupt industrial output for the remainder of Q1 2020.”
There’s also the worry that resuming operations at this point could lead to more infections, and further halts to business operations.
In southwestern China, a factory belonging to Pangang Chongqing Titanium Industry had to close after three workers were infected on Monday, Feb. 10, the industrial park confirmed in a phone call, noting about 130 people were in close contact with the three confirmed cases. The factory is now under quarantine, and a notice from the committee said the company did not fully comply with virus prevention procedures before resuming production.
E-commerce merchants get hit
Technology and e-commerce giant Alibaba gave a glimpse into how far-reaching the disruptions are in its earnings call on Thursday.
“Merchant operations have not returned to normal and a significant number of packages were not able to be delivered on time,” CEO Daniel Zhang said of the two weeks since the holiday, according to a transcript seen by CNBC.
The company’s CFO Maggie Wu added that while it’s too early to quantify the impact of the virus, it would likely negatively hit overall revenue growth for the March quarter.
On Monday, Alibaba announced an array of financial measures and other benefits to support affected merchants. The moves echo a slew of supportive polices from the national and local governments for helping privately run, smaller businesses, which contribute to more than half of economic growth in China but often operate at a disadvantage in the state-dominated system.
To emphasize the severity of the situation, Nomura’s Lu pointed to a recent survey released Wednesday by the Postal Savings Bank of China and Economic Daily, which said more than 90% of the more than 2,200 small and medium-sized enterprises surveyed have delayed their resumption of business.
About half of the respondents have pushed back the beginning of work for more than two weeks, and a “considerable proportion” have not decided when to resume operations, Lu pointed out.
More concerning for China’s longer-term growth is that more than half of the businesses surveyed said they would likely not be able to survive for three months on their current level of capital if the virus persists.
Last week, Moody’s issued a report noting that the spread of the virus is a credit negative for Chinese banks, given the greater potential for increased loan delinquencies.
“If you just look at the virus, of course it has a negative impact on asset quality and China’s economic growth,” Yulia Wan, vice president and senior analyst at Moody’s Investors Service, said in a phone interview this week, according to a CNBC translation of her Mandarin-language remarks.
But she also noted the significant number of new, targeted government support policies. Like other analysts, Wan said it’s how long the virus persists that will ultimately determine how significant its impact will be.
Source: CNBC
Feb 15, 2023 13:35
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