For companies bracing for losses from China’s viral outbreak, the damage has so far been delayed, thanks to a stroke of timing: The outbreak hit just when Chinese factories and many businesses were closed anyway to let workers travel home for the week-long Lunar New Year holiday.
But the respite won’t last.
If much of industrial China remains on lockdown for the next few weeks, a very real possibility, Western retailers, auto companies and manufacturers that depend on Chinese imports will start to run out of the goods they depend on.
In order to meet deadlines for summer goods, retail experts say that Chinese factories would need to start ramping up production by March 15. If Chinese factories were instead to remain idle through May 1, it would likely cripple retailers’ crucial back-to-school and fall seasons.
“There’s complete uncertainty,” said Steve Pasierb, CEO of the Toy Industry Association. “This could be huge if it goes on for months.”
Wuhan, the Chinese city where the outbreak hit hardest, is a centre of automotive production. It’s been closed off, along with neighbouring cities, isolating more than 50 million people and bringing factories to a standstill.
So far, U.S. automakers haven’t had to curb production for want of Chinese parts. But David Closs, professor emeritus at Michigan State University’s Department of Supply Chain Management, said the clock is ticking.
“I would say it’s weeks at the most,” Closs said. “One to two to three weeks.”
The partial shutdown of Wuhan has already harmed the production of TV display panels and raised prices, according to a report by research group IHS Markit. The city has five factories making liquid crystal displays, known as LCDs, and organic light-emitting diodes, known as OLEDs, both of which are used for television and laptop monitors. China accounts for more than half of the global production of these display panels.
David Hsieh, an analyst at IHS Markit, said in a report that “these factories are facing shortages of both labour and key components as a result of mandates designed to limit the contagion’s spread,” leading suppliers to raise panel prices more aggressively.
Phone-maker Motorola, which has a facility in Wuhan, said that so far, it expects little impact because it has a flexible global supply chain and multiple factories around the world. Its priority has been the welfare of local employees, Motorola, which is owned by the Chinese electronics giant Lenovo, said in a statement.
Apple CEO Tim Cook told analysts last week that the company’s contractors in China had been forced to delay reopening factories that closed for the Lunar New Year holiday. Cook said the company is seeking ways to minimize supply disruptions. Some of its suppliers are in Hubei, the Chinese province at the centre of the outbreak. Most of Apple’s iPhones and other devices are made in China.