The New Coronavirus Is Affecting Chinese Factories — And The Global Supply Chain

Many Chinese factories are hoping to reopen next week, but it's not clear they'll have the workers they need amid the ongoing coronavirus outbreak. That could have effects for U.S. manufacturers.

MARY LOUISE KELLY, HOST:

China has now opened two new hospitals in the city of Wuhan. These are hospitals built just in the last couple of weeks to treat patients in the epicenter of the now worldwide coronavirus outbreak. The virus has so far sickened more than 28,000 people. It has killed more than 500. It has also taken a toll on Chinese industry. Many factories are scheduled to reopen next week, but they may not have all the workers they need. That is sending ripples through the global economy.

And to tell us more, we're joined by NPR's Emily Feng in Beijing. Hey, Emily.

EMILY FENG, BYLINE: Hey, Mary Louise.

KELLY: And NPR's Scott Horsley here in Washington. Hey, Scott.

SCOTT HORSLEY, BYLINE: Good to be with you.

KELLY: All right. So, Emily, you kick us off because I know you have been talking with Chinese workers who have watched their Lunar New Year break extended because of this outbreak. How are they feeling? Do they expect to be back at work, on the job next week?

FENG: They certainly want to be. Some people are already going to great lengths to get back to work and to start earning money again. One of my favorite stories from today, which is a little bit sad, is from the southern Chinese city of Xiaogan which I visited last week because it's separated by only a river from the epicenter of the outbreak, Hubei province. And residents in the city were really worried that if the quarantine in Hubei went on for longer, that residents from the other side would try to swim over. Police told us it was impossible; the current was just too strong.

But yesterday someone did it. A migrant worker who was desperate to earn money took a wooden tub and paddled his way across the river to Xiaogan. But police found him, and they returned him to Hubei.

KELLY: That really speaks to the desperation of people who need to work. But are these factories likely to reopen? What are the other obstacles?

FENG: They're supposed to open this coming Monday. But the problem is people may not be able to get to work. China has about 300 million migrant workers that run its factories, that bus its restaurant tables. These people are currently sealed in their own villages. I had visited several of them last week around Beijing and the south. And it's going to be really hard to lift all those quarantines at once.

KELLY: OK, so that is the situation in China.

Scott Horsley, give us a sense of how this might play out worldwide. We have heard, for example, from South Korea, where Hyundai has said it is temporarily closing all its auto plants because they can't get the parts they need from Chinese suppliers. Is that a fear for U.S. automakers, too?

HORSLEY: There is a little more slack in the system with the U.S. auto industry, so the hiccup would not come immediately, the way it did in South Korea. I'm told that there were parts shipped before the Lunar New Year holiday that are still in the pipeline. So an interruption might still be weeks away. But if the work stoppage continues, there certainly could be problems. Now, it's not as though U.S. automakers import, say, engines from China. But on an auto assembly line, even a little fastener can be critical. You can find yourself in a, you know, for-want-of-a-horseshoe-nail situation.

I talked with a consultant for automakers who's knowledgeable about the Chinese supply lines, Michael Dunn, who says U.S. companies were already exploring alternatives because of the trade war.

KELLY: Yeah.

HORSLEY: But they were finding it's really not easy, and that's why they still depend on Chinese suppliers. This, though, could cause them to take another look.

KELLY: Aside from cars, what other American industries are watching this with a close and worried eye?

HORSLEY: Other industries that are heavily dependent on China for components are the computer industry, electrical components, the transportation sector. And those that would be affected first are the ones that don't keep a lot of inventory, that rely on just-in-time deliveries, typically by air. About half of the air cargo that comes to us from China typically comes in the belly of passenger planes, and obviously we've seen those passenger flights have pretty much ground to a halt.

KELLY: Yeah.

HORSLEY: The longer this goes on, the wider the impact will be felt. And Phil Levy, who's with the logistics firm Flexport told me it's not just about, you know, cargo containers that don't show up; there's also emotional cargo with an episode like this.

PHIL LEVY: One of the real challenges here may not actually have to do with the direct physical effects of the disease, but the extent to which people get worried or scared and stop making business deals, go into conferences, shopping at malls and the like.

KELLY: Emily, let me give you the last word, and I wonder if you would send us out with a bigger picture. We have all been watching as China's economy was already slowing. What is likely to be the hit from coronavirus?

FENG: It's going to be big. The Economist Intelligence Unit said that they're going to lower their GDP forecast for China for the entire year by half a percent to 5.4%. That doesn't sound like a lot, half a percent. But last year, people were making a big deal that China's GDP would be lower than 6%, which is the lowest it was in almost 30 years. All of these numbers are based on the assumption the virus will be under control by the end of March, which given the fact that confirmed cases of the virus are still going up and the severity of the quarantine measures, that's not a guarantee either.

KELLY: That is NPR's Emily Feng in Beijing and Scott Horsley with me here in Washington. Thanks to you both for your reporting.

HORSLEY: You're welcome.

FENG: Thanks for having me.

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