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China, the world's factory, has caught the flu. Now what?

Vicky Kapur (From the Executive Editor's Desk)
Filed on February 9, 2020 | Last updated on February 9, 2020 at 06.25 am
china, world, factory, flu, coronavirus

(Reuters)

Economists maintain that the latest virus could rob the world of more than $360 billion.

What do Buzz Lightyear, Adidas Ultra Boost, Tesla Model 3 and the iPad Pro have in common? China, of course. From toys to sneakers, personal care products to gadgets, automobiles to apparel, you won't find too many of your daily-use items that don't come with a made-in-China tag. The most populous country, China is known as the factory of the world - and for good reason. Since the early 1980s, the country has strategically invested heavily in a score of Special Economic Zones, offering tax incentives and administrative sops to boost its export competitiveness. It overtook the United States as the world's largest manufacturer in 2011 and has never looked back since. With more than 150 million workers in China's factories, the country employs more than 40 per cent of the world's workforce in the manufacturing sector.

Today, the world is addicted to Chinese goods - not just low-cost toys and gizmos but also to some hi-tech and top-end products like the iPhones, Burberry bags and BMW cars that roll out from the millions of shop floors in the country.

And now the same China, the preferred manufacturer to the world, has caught the flu - novel coronavirus, to be precise. With more than 34,600 confirmed cases and 723 deaths due to the 2019-nCoV in mainland China, factories have temporarily shuttered their shop floors and foreign manufacturers have shipped their expats back home. A section of workers is set to return to work tomorrow after an extended New Year's holiday, but a large number of factories are expected to remain closed for at least another week. In addition, an unprecedented lockdown has put more than 50 million people under virtual quarantine and out of touch with the rest of the country, making work at full capacity impossible at a majority of factories.

That has had a direct impact on the goods manufactured in the country and is bound to have a ripple effect on factories outside the country that are dependent on made-in-China components. The world's fifth-largest carmaker Hyundai, for instance, has had to halt production at its South Korean plant because it ran out of parts from China. Several other carmakers dependent on Chinese components are in a similar situation. Though estimates vary, the 2003 SARS virus (severe acute respiratory syndrome) cost the world's economy about $50 billion. The impact of the 2019-nCoV cannot yet be established, but given the surge in importance of China in the global economy over the past two decades, economists maintain that the latest virus could rob the world of more than $360 billion - or over seven times the damage caused by SARS. Credit insurance firm Euler Hermes reckons that the world faces a trade shock of $26 billion per week from the Chinese factory lockdown, with electronics and computers at most risk.

Airlines, which have all but stopped flying in and out of the world's most populous country, are among the most visibly impacted. Hong Kong carrier Cathay Pacific has asked its 27,000 employees to take three-week unpaid furloughs over the next few months in a bid to stay afloat during testing times. Other airlines are trying to boost capacities elsewhere while those that continue to service select Chinese destinations are having to find creative ways of incentivising crew and alleviating their fears. As millions of workers resume work tomorrow, the world will be holding its breath (pun unintended) to see the fallout of easing in travel restrictions. The fear is that millions of people once again working in confined areas may raise the spectre of the coronavirus spreading with even more fury and may even further mutate. With the world facing a microbial challenge of unprecedented proportions, it's much more than toys and sneakers at stake.


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