The impact of COVID-19 on China’s manufacturing industry
China’s manufacturing industry has been a major catalyst in catapulting its economy to astonishing heights over the years. In 2018, the Chinese manufacturing industry generated USD 4 trillion and accounted for 30% of the nation’s total economic output. The country surpassed the US, to become the global manufacturing hub, accounting for 28% of global manufacturing output in 2018. However, with the COVID-19 crisis limiting mobility and slowing down demand globally, China’s manufacturing sector faces an economic loss of nearly USD 50 billion. Though the country is gradually recovering from the pandemic, its impact will leave long-term effects on the industry. This article details how key sectors within China’s manufacturing industry will be impacted due to the novel coronavirus pandemic.
Chemicals
Since 2009, China has become the largest chemical producer in the world, surpassing the EU. The chemical industry is also a significant contributor to the country’s economy, with sales accounting for USD 1.5 trillion. Hubei, in particular, is home to many prominent chemical industries. Being at the epicenter of the COVID-19 outbreak at the end of 2019, the nation’s chemical industry has been severely dented. As of March 2020, the industry has suffered an output loss of 14% and profits slumped by 39%.
Construction equipment
China is the largest supplier of construction equipment in the US. It includes building products such as iron, steel, drywall, and machinery. The COVID-19’s disruption on China’s supply chain has crippled the construction market. This disruption is likely to cause a price-inflation for these products. According to one study, 35% of contractors indicated that their suppliers have put upstream parties to identify challenges in the supply chain.
Automotive
The Chinese automotive market continues to be fragile due to the pandemic. According to the China Association of Automobile Manufacturers, car sales have slumped 42% in the first quarter of 2020. Car sales in China usually reach 6 million in the first quarter of a year, while 2020 saw roughly 3.6 million sales. NEV vehicles have suffered the most during this period, with less than half the amount of vehicles sold in this quarter. With declining demand, priority for the industry has shifted to boosting demand. The Chinese government has announced extending subsidies and tax breaks for NEV manufacturers for the next two years.
As the industry tries to recover the losses by reopening its manufacturing plants, most dealers continue to face inventory shortages. Analysts now estimate the Chinese automotive industry can face losses off up to 9% before the year ends.
Consumer electronics
China is also the largest producer and exporter of consumer electronics worldwide. The outbreak has halted the production of various electronic input supplies. Researchers estimate that roughly two-thirds of US businesses operating in China expect lower growth due to a lack of staff. This disruption has caused countries like India to face a shortage of critical electronic products and parts. The most prominent example is Apple delaying the launch of the iPhone 9 due to a lack of labor force and the shutdown of factories in China. For countries looking for alternative resources in this industry, supply chain issues make it hard to look elsewhere.
The next chapter in China’s manufacturing saga
The coronavirus pandemic has prompted many companies to shift their manufacturing base to other countries to reduce their reliance on China’s manufacturing industry. Japan has already earmarked USD 2.2 billion to help its manufacturers shift out of China. Japanese carmaker Mazda swiftly shifted a part of its production from Jiangsu in China to Guanajuato in Mexico due to the growing outbreak. Though installation costs were high, the move is expected to be beneficial in the long run. Microsoft and Google are looking to Thailand and Vietnam for the production of their new phones, computers and other devices. The COVID-19 impact is expected to pave the way for more foreign investments in developing economies like Thailand, India, and Vietnam.
The post-COVID-19 world is expected to result in diversification of resources rather than monopolization. Developing nations mainly in Southeast and ASEAN regions are likely to get the economic boost they need to catch up with China.
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