‘Like Europe in Medieval Times’: Virus Slows China’s Economy

By: The New York Times

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Taikoo Li, normally one of the most bustling business areas in Chengdu, China, on Thursday.Credit...Yuyang Liu for The New York Times

Workers are stuck in their hometowns. Officials want detailed health plans before factories or offices can reopen. Assembly lines that make General Motors cars and Apple iPhones are standing silent.

More than two weeks after China locked down a major city to stop a dangerous viral outbreak, one of the world’s largest economies remains largely idle. Much of the country was supposed to have reopened by now, but its empty streets, quiet factories and legions of inactive workers suggest that weeks or months could pass before this vital motor of global growth is humming again.

The global economy could suffer the longer China stays in low gear. It has been hampered by both the outbreak and its own containment efforts, a process that has cut off workers from their jobs and factories from their raw materials. The result is a slowdown that is already slashing traffic along the world’s shipping lines and leading to forecasts of a sharp fall in production of everything from cars to smartphones.

“It’s like Europe in medieval times,” said Jörg Wuttke, the president of the European Chamber of Commerce in China, “where each city has its checks and crosschecks.”

New figures show the authorities still have a long way to go before the outbreak can be tamed. On Tuesday, they reported a milestone: the overall death toll from coronavirus in China had topped 1,000. On Monday, the number was 908.

In a sign that China’s leaders feel increasing pressure to look like they are in control, Xi Jinping, the country’s top leader, toured a Beijing neighborhood and hospital, in what state media described as an inspection of the front line of the outbreak. Chinese officials have been roundly criticized online even in the face of tough censorship for what many see as a slow initial response and the suppression of early warnings.

On Monday, a team from the World Health Organization landed in Beijing to work with Chinese researchers battling the coronavirus. Their arrival could signal a shift in attitude among China’s leaders, who had balked at a visit and have long worked to show that they do not need foreign assistance to tackle problems.

The organization’s director general, Tedros Adhanom Ghebreyesus, cited with concern instances of infections among people who had not traveled to China, suggesting that even more cases could emerge. “In short, we may only be seeing the tip of the iceberg,” he wrote on Twitter.

Chinese health officials have been encouraged that the pace of recoveries among victims has outpaced deaths for more than a week. The rate of infection, however, has continued to soar, suggesting that the worst is still to come.

It is becoming increasingly clear that restarting China — the world’s largest manufacturer and a titan of global trade — would be difficult even if the country made major strides in the next few days toward containing the outbreak.

Until then, the damage is spreading.

On Monday, Nissan of Japan said it would shut down its plant in Kyushu, Japan, for four days beginning later this week “due to supply shortages of parts from China.” Other carmakers, like FCA in Italy and Hyundai in South Korea, have already warned that a lack of parts from China could force them to curtail production in their home markets.

As the day dawned, it was clear that business as usual had not resumed. Traffic in Beijing was much lighter than normal, stores remained closed and many residents worked from home or did not work at all.

Daimler, the German maker of Mercedes cars, said it began gradually ramping up production at its Chinese factories on Monday. But other major companies said their factories remained closed or were running slower than usual. Ford Motor said that its joint venture with one of China’s biggest state-owned firms was restarting some production, but that it would “ramp up our production over the following weeks.”

General Motors said it would reopen the first of its huge assembly plants in China on Saturday, and would gradually reopen the rest over the next two weeks, “based on local employees’ safety readiness, supply chain readiness and product inventory needs.”

China’s containment efforts are contributing to the disruptions.

The authorities have locked down a region of central China around Wuhan, the city at the center of the outbreak. The local authorities are taking a tough stance with traffic, meaning workers are struggling to return to their jobs. Many towns and cities have begun imposing two-week mandatory quarantines on arriving truck drivers who picked up cargos in cities with disease outbreaks or even just drove through these areas.

Wu Lin, an associate director at a Shanghai advertising company, returned to Wuhan, her hometown, for the holidays on Jan. 21 and had a high-speed train ticket back to Shanghai on Feb. 2. But her ticket was canceled soon after Wuhan was locked down, and she has tried and failed repeatedly since then to find a way out.

“There is no point to keep looking,” she said.

Shipyards around the country have run into labor shortages, said Tim Huxley, the chief executive of Mandarin Shipping, a Hong Kong freighter shipping company. Shipbuilders and ship repair providers have begun citing these labor shortages to invoke clauses in their contracts that allow them to delay completion of projects for events beyond their control, he said.

Aside from fear of disease, the country’s nearly 300 million migrant workers — almost two-fifths of the labor force — now have another reason to be reluctant to travel to distant cities: Their children are still home. Depending on the province, many schools are not scheduled to resume until Feb. 25 or even March 1.

Even factories with enough workers are running into further problems. The packaging industry is almost shut down, so everything from plastic packing to steel drums is running out, Mr. Wuttke said.

Local regulators are putting up even more barriers.

Before businesses in big manufacturing hubs like Shanghai, Shenzhen, Suzhou or Nanjing can reopen, they must now verify the travel history and health of every employee over the past two weeks. They must have frequent temperature checks of employees, hand-washing procedures and a plan to isolate and refer to hospitals anyone showing even fevers as low as 99.1 degrees Fahrenheit.

Most difficult of all, businesses cannot reopen without approval of their health plans by municipal officials — and larger operations also have to wait for a site visit from a health official.

Shenzhen, a vast sprawl of electronics factories and skyscrapers next to Hong Kong, issued new health and safety rules on Sunday and said factories that made iPhones and other Apple products would have to meet them before opening. Foxconn Technology, a Taiwanese company that owns the factories, said it met all health and hygiene rules but declined to comment on when production would restart at specific locations. Apple declined to comment.

Apple’s iPhone production, which is heavily concentrated in China, could drop by 10 percent in the first three months of the year, projected TrendForce, a technology forecasting firm in Taiwan.

The municipal government in Shanghai, home to more than 20 million people and a vast array of businesses, said only 70 percent of the city’s manufacturers were taking steps to resume production. Few have actually received permission to do so.

Businesses “want to protect staff, but also nobody wants to get caught offsides when it comes to the labor law or the daily announcements from the government,” said Ker Gibbs, the president of the American Chamber of Commerce in Shanghai.

It is not yet clear how the ripples from China’s slowdown will affect the United States. Businesses that rely on assembling a lot of different parts from various suppliers could become the hardest hit. At the top of that list is the auto industry — a single car may require as many as 30,000 parts from various suppliers.

American businesses have been trying to diversify away from China as President Trump’s trade war with Beijing has made it less economical to manufacture there. But a lot of steering parts, electronics and even door hinges still come to the United States from China, said Razat Gaurav, the chief executive of Llamasoft, a company in Ann Arbor, Mich., that handles supply chain logistics for big automakers and aerospace companies in North America.

“If the current coronavirus crisis continues to impact production capacity in China,” he said, “it will ultimately impact auto assembly plants in the U.S. and Mexico.”