Asia Minute: China’s Factory Blues Continue

Mar 30, 2020

The United States has now overtaken China as the location with the most cases of COVID-19. But while some parts of the Chinese economy have re-opened, industrial life there is still far from business as usual.

China’s factories are slowly grinding back to life.

In the early days of the COVID-19 outbreak and spread, they were shut down because of a supply problem: including a lack of labor as workers stayed home. But now as workers come back, the issue has shifted to a demand problem — the rest of the world doesn’t want consumer items set to come off the production lines of Chinese factories.

Stores in most parts of the world are in no position to sell them.  

The relatively early days of the coronavirus spread have already taken a heavy financial toll on Chinese producers. Late last week the government reported factory profits plunged by nearly 40% in the first two months of the year — to their lowest levels in at least a decade.

Now that some industrial production is coming back on line, another problem is the global supply chain — access to raw materials and intermediate goods that China uses to turn out finished products.

Exports are continuing to slump as global demand plunges. The Macquarie Group expects Chinese exports to fall sharply this year — telling investors in a report that they “could easily fall by 10% or probably more.”

A Bloomberg survey of economists expects a negative first quarter for China, and perhaps the weakest year for its economy since 1976 — when Mao Zedong still led the country.