As New Coronavirus Cases Slow In China, Factories Start Reopening

February 29, 2020 / 5:03 am

As new cases of coronavirus infection slow in China, the country is gradually getting back to work. Authorities and businesses are taking a range of measures: Local governments are chartering buses for workers. Some companies are buying out entire hotels to house quarantined staff. A temporarily shuttered movie studio is even loaning employees to factories that are short on labor.

Strict quarantine measures designed to stop the spread of the new coronavirus prevented nearly 300 million migrant workers from returning to their jobs, shutting down one of the largest economies in the world for nearly three weeks and paralyzing global supply chains.

Now the government is advising local officials to balance seemingly contradictory mandates: use all methods possible to limit the further spread of a deadly new virus while meeting annual economic growth targets.

Earlier this month, at a top-level political meeting, China's leader Xi Jinping called for an all-out "people's war" against the deadly virus. But at the same meeting, he also urged officials to continue to "reach goals and tasks of economic and social development this year."

And so, beginning last week, factories across China started slowly reopening. At least eight provinces and regions downgraded their emergency levels, loosening the most draconian restrictions on movement to allow people to leave their homes and return to work. But the biggest bottleneck continues to be a shrunken workforce, as many returning workers must be quarantined for two weeks before entering factories.

A late-February survey by the Cheung Kong Graduate School of Business in Beijing found that 45% of firms surveyed had "no way to resume work," mostly due to labor shortages. Just 11% predicted their production capacity would reach between 80% and 100% by the end of February.

China's purchasing managers' index, a measure compiled by China's state statistics agency and an industry group that measures manufacturing and service sector activity, plunged to 35.7 in February from January's 50. The index is on a 100-point scale; numbers below 50 indicate activity contracting.

According to the European and German chambers of commerce, 59% of their member companies in China responding to an internal survey claimed the outbreak and China's containment measures have had a "high impact" on their businesses; 48% said they would lower their financial outlook by more than 10% for the first half of 2020.

Another survey, released Thursday by the American Chamber of Commerce in China, found that nearly a third of American firms surveyed are facing increased costs and sinking revenues as a result of disruptions to operations and travel.

Especially for large-scale companies that are integral to global supply chains, time is of the essence. One such company is Ningbo Xusheng Auto Technology, which manufactures machine parts for European and American cars in the Chinese port city of Ningbo, in Zhejiang province.

"Our clients are international, and they didn't stop operations during the outbreak. Unlike other companies who sell to Chinese clients, who all had to shut down, we really have to get back to work," Cloud Zhao, a Xusheng sales director, tells NPR. The factory is now running at 80% of its pre-virus operating capacity, Zhao says, after going through an expedited permit process with local authorities.

All businesses must navigate a lengthy list of requirements to obtain permission from local authorities to reopen. First, Xusheng provided officials with a full list of employees, which in turn was vetted using "big data methods," says Zhao. Then workers had to enter their national ID numbers and phone numbers into a new provincial app created as part of virus control efforts, which identifies the cities and provinces they visited in the previous two weeks. Xusheng Auto must quarantine for two weeks anyone who spent time in a heavily infected area, before allowing them to enter the factory.

To protect healthy workers, the automaker also had to show teams of inspectors that it is stocked with masks and disinfectants, and has enough space to serve as quarantine wards.

Michael Chen, a manager at an electronics manufacturing plant in the neighboring province of Jiangsu, says his company has rented an entire hotel — now empty because there are no travelers — to quarantine his returning workers. His plant, normally staffed by around 2,000 workers, is back up to 70% of its pre-virus operation levels, he says, but revenues likely will only be about half what they were before the outbreak.

"Our sales have been badly hit. It has been a big hassle," says Chen. "It is not that demand is actually down, but some of our supply chains are not coming back, especially if they are in Hubei province." Hubei is the epicenter of China's coronavirus outbreak, where most of the coronavirus' 2,800-plus deaths have occurred.

Chen says every week he has to buy thousands of surgical masks — which now cost three times the normal price — for his workers. The city of Kunshan, where Chen works, chartered buses to ferry workers back to work, but Chen says there were not enough: "You have to mainly rely on yourself. A lot of this is outward-oriented propaganda. In reality, the measures were not enough."

Last weekend, Xi gave a teleconferenced speech to 170,000 officials, promising the economic impact on would be "short-lived." China's central bank has also said it will make it easier for small- and medium-sized businesses to take out loans or repay debt, perhaps even cut taxes, but more specific measures haven't been spelled out yet.

"We haven't received very specific policies of how the central or local government will support private businesses, but we trust that they are also waiting for more specific information," said Zhao, of Xusheng Auto.

Chucheng Feng, a partner in the political risk firm Plenum, says over-centralization of power in China's political system means policy can move slowly: "It takes time, province to province, to comprehend what Xi Jinping is talking about. Especially lower-ranking officials, they don't have incentives to work on their own, because the risk is if they are at odds with central policy, from central decision making, they may be purged."

Calls by the central government to ease access to loans and delay paying off corporate debts are also a sharp reversal from earlier instructions passed on to local governments. "They've been told the entire year to focus on poverty alleviation, to focus on financial de-risking, which means they were originally under the impression to lower credit," explains Feng.

Even if business owners manage to secure reopening permits, widespread labor shortages are still hampering full resumption of national production. Research released this week on Henan province, a major source of migrant labor for industrial hubs like Beijing and the Pearl River Delta, indicated that only 5% of migrant workers have been able to leave.

To address the labor shortfall, regional authorities are promoting a plan they've dubbed "employee-sharing," which allows firms to borrow workers from places that remain shut down.

The Hengdian Group, a large private enterprise in Zhejiang province, resumed production in two of its factories in February after bringing employees from a subsidiary company — Hengdian World Studios, the world's largest film and television production site that doubles as a sprawling theme park — to work on the assembly lines. Employees who used to sell tickets at the theme park are now sorting and packing Hengdian's magnetic and lighting goods.

According to Chinese state media, over 1,000 studio workers were temporarily hired to help with factory production, including to Apeloa Pharmaceuticals, another Hengdian subsidiary. But when reached by phone, an Apeloa administrator told NPR that hadn't happened.