By Andrew Soergel, Senior Writer, Economics,
American and international companies are sounding alarms over the likely economic impacts of the ongoing coronavirus outbreak in China, warning that reduced flows of goods and people into and out of the world’s second-largest economy will have a tangible impact on business and product availability throughout the world.
“Even if the virus does not turn into a pandemic, to think it isn’t going to impact what’s going on in the world is irrational,” Scott Minerd, global CIO of Guggenheim Investments, wrote in a research note last week. “The impact of all this on corporate profits and free cash flow will be dramatic.”
Business as usual has yet to return to much of China as retailers keep doors shuttered in particularly hard-hit areas in and around the city of Wuhan, where the outbreak is believed to have originated. More than 75,000 coronavirus cases have been confirmed worldwide, with at least 2,000 fatalities and infection and death totals climbing both within and outside of China.
Some factories, including a few owned by Ford, Toyota and Volkswagen, have begun reopening their doors to resume activity in recent days – a long-awaited development for global supply chains that depend on Chinese products and intermediate parts.
But nearly 4 in 5 American companies with operations in China say they don’t currently have sufficient staff available to run a full production line, according to a survey published earlier this week by the American Chamber of Commerce in Shanghai. Nearly 3 in 5 companies say they believe demand for their products will be lower than normal in the months ahead.
“The biggest problem is lack of workers as they are subjected to travel restrictions and quarantines,” Ker Gibbs, president of the American Chamber of Commerce in Shanghai, said in a statement earlier this week, noting that “most factories have a severe shortage of workers, even after they are allowed to open.”
“This is going to have a severe impact on global supply chains that is only beginning to show up,” he said.
Indeed, Apple on Monday warned in a note to investors that “we are experiencing a slower return to normal conditions than we had anticipated” as Chinese factories remain shuttered or backlogged from a government-mandated extended Lunar New Year holiday – one of several measures Beijing has adopted in its attempt to curb the spread of the virus.
“This is going to have a severe impact on global supply chains that is only beginning to show up.”Apple concluded that it will likely not meet revenue expectations for the first quarter, cautioning that “worldwide iPhone supply will be temporarily constrained” and that “all of our stores in China and many of our partner stores have been closed.” China is a primary exporter of not only finished manufactured products but also parts and components that international supply chains rely on. Product shortages, particularly for computers, smartphones and electronics, have been widely anticipated as China attempts to rein in the spread of the virus.