Monday April 6th, 2020 10:14AM

Clock is ticking for companies that depend on China imports

By The Associated Press
Related Articles
  Contact Editor

WASHINGTON (AP) — 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 center of automotive production. It’s been closed off, along with neighboring 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.’’

Hyundai Motors said Tuesday that it was suspending production in South Korea “due to disruptions in the supply of parts resulting from the coronavirus outbreak in China'' and that it "was seeking alternative suppliers in other regions.''

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 capacity for making these display panels.

David Hsieh, an analyst at IHS Markit, said in a report that “these factories are facing shortages of both labor 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 center of the outbreak. Most of Apple’s iPhones and other devices are made in China.

In the meantime, economists are sharply downgrading the outlook for China’s economy, the world’s second-biggest. Tommy Wu and Louis Kuijs of Oxford Economics have slashed their forecast for Chinese economic growth this year from 6% to 5.4%. They expect most of the damage to be inflicted in the first three months of 2020.

“But a more serious and long-lasting impact cannot be ruled out,’’ they wrote Monday.

Forecasters are contending with unknowns. No one knows how long the outbreak will last, how much damage it will cause or how policymakers will respond to the threat.

“We’re grasping for precedents,’’ said Phil Levy, chief economist at the freight company Flexport who was an economic adviser in the administration of President George W. Bush.

Some look back to the SARS outbreak, which paralyzed the Chinese economy for the first few months of 2003. But the damage from SARS faded quickly: China was booming again by year’s end. And the world economy emerged mostly unscathed.

But times have changed in ways that are not favorable to containing the economic damage. Back then, China was the world’s workshop for cheap goods — toys and sneakers, for instance. Now, China has moved up to sophisticated machine parts and electronics like LCDs. And it accounts for about 16% of global economic output, up significantly from just 4% in 2003.

Levy said he was struck by how U.S. airlines reacted to the coronavirus: They suspended flights between the United States and mainland China for weeks — American airlines through March 27, United through March 28 and Delta until April 30.

The move doesn’t just affect tourists, students and business travelers. Caryn Livingston, editor of Air Cargo World, noted that about half of air cargo has historically been transported in the bellies of passenger aircraft.

“When you see them loading those big 747s, that’s not just your luggage,’’ Levy said. “That can be pallets full of electronics and other things.’’

The health crisis coincides with an especially difficult time for China’s factories. A 19-month trade war with the United States — in which the Trump administration imposed tariffs on $360 billion of Chinese imports — has already led U.S.-based multinational corporations to look for alternatives to Chinese suppliers. Many are moving to Vietnam or other low-wage countries to dodge President Donald Trump’s taxes on Chinese-made goods.

The Trump administration and Beijing last month reached an interim trade deal. China agreed to step up purchases of U.S. imports by $200 billion this year and next. But Trump’s top economic adviser, Larry Kudlow, told Fox Business Network on Tuesday that the viral outbreak means that the expected “export boom from that trade deal will take longer.”

The coronavirus, along with fears that U.S.-China tensions over trade and geopolitics will persist, gives them one more reason to reduce their reliance on China. Among multinational firms, there is “increasing unease that China is starting to become quite risky,’’ said Johan Gott, an independent consultant who specializes in political risks for businesses.

But it isn't easy to completely abandon China, where specialized suppliers cluster in manufacturing centers and make it convenient for factories to obtain parts when they need them.

Basic Fun, a toy company based in Boca Raton, Florida, has sought suppliers in Vietnam and India with no luck yet. Its CEO, Jay Foreman, said he is hoping that the factories in China will resume production by early April, which he considers the best-case scenario. But he fears that any more delays could mean that the factories don’t start to ramp up production until after May 1.

The stakes are high. Basic Fun gets about 90% of its toys from China. And Foreman has been contending with the trade war and disruptive protests in Hong Kong.

The coronavirus, he said, is “just a continuation of sitting on the knife's edge ... sleeping on the bed of nails from tariffs to the riots in Hong Kong and the virus. We just can't get a break.”


D'Innocenzio reported from New York. AP Business Writers Tom Krisher in Detroit, David Koenig in Dallas and Matt O'Brien in Providence, Rhode Island, contributed to this report.

  • Associated Categories: Associated Press (AP), AP National News, AP Online National News, Top General short headlines, AP World News, AP Business, AP Business - Careers, AP Business - Corporate News, AP Business - Economy
© Copyright 2020
All rights reserved. This material may not be published, broadcast, rewritten, or redistributed without permission.
Pompeo message in Europe, Central Asia trip: Beware of China
Secretary of State Mike Pompeo visited on a wide variety of nations in his recent tour of of Europe and Central Asia, but his message stayed the same: Beware of China
12:29AM ( 11 minutes ago )
Trump faces accusers: What to watch during his big speech
President Donald Trump will be facing his accusers Tuesday night during his State of the Union speech
12:26AM ( 13 minutes ago )
The Latest: Iowa precinct chair says voting app had problems
An Iowa precinct chairwoman says she did not use the new app created for caucus organizers to report results because organizers had problems trying to download and test it
12:25AM ( 14 minutes ago )
Associated Press (AP)
1 dead, 5 wounded in shooting on Greyhound bus in California
The California Highway Patrol says a gunman opened fire aboard a packed Greyhound bus, killing one passenger and wounding five others before the driver pulled over onto the shoulder
11:49PM ( 51 minutes ago )
The Latest: Warren says Iowa caucus is 'too close to call'
Elizabeth Warren says the Iowa caucus is “too close to call” and instead used much of a speech at her caucus party to criticize President Donald Trump
11:48PM ( 51 minutes ago )
Democratic caucus results delayed by mobile app issues
Problems with a mobile app appear to have forced a delay in reporting the results of the Iowa caucuses, as the campaigns, voters and the media are pressing party officials for an explanation — and getting few answers
11:48PM ( 52 minutes ago )
AP National News
Rush Limbaugh says he's been diagnosed with lung cancer
Conservative radio host Rush Limbaugh says he’s been diagnosed with advanced lung cancer
10:30PM ( 2 hours ago )
China's virus cases top 20K as Hong Kong reports 1st death
China says the number of infections from a new virus has surpassed 20,000 as medical workers and patients arrived at a new hospital and President Xi Jinping said “we have launched a people's war of prevention of the epidemic
10:18PM ( 2 hours ago )
Caucus voting underway; Iowa may clarify Democratic field
Iowa voters have packed caucus sites across the state, with Democrats balancing a strong preference for fundamental change with an overwhelming desire to defeat President Donald Trump
10:02PM ( 2 hours ago )
Top General short headlines
Asia shares gain, Shanghai up slightly after Wall St rebound
Shares are higher in Asia, with the Shanghai Composite up 0.2% after a rebound on Wall Street overnight
11:27PM ( 1 hour ago )
Shows canceled as virus outbreak spooks Asian entertainers
Concerts and shows are being canceled, not just in China but across much of Asia, as a virus outbreak that has killed more than 300 people and reached more then 20 countries spooks the entertainment industry
11:02PM ( 1 hour ago )
Minnesota regulators put Line 3 oil pipeline back on track
Minnesota utility regulators have put Enbridge Energy's plan to replace its aging Line 3 crude oil pipeline back on track
6:49PM ( 5 hours ago )
AP Business
Trump rally on Jersey shore shows loyalty beyond heartland
President Donald Trump heads to New Jersey this week for a rally in a county with almost no factory jobs to save, a reliance on immigrant workers and an economy built in part by coastal elites who summer there
3:04PM ( 1 week ago )
AP source: Vikings' Paton withdraws from Browns GM job hunt
Minnesota assistant general manager George Paton has withdrawn his candidacy for Cleveland's general manager vacancy, according to a person with knowledge of the decision
4:30PM ( 1 week ago )
Trump administration picks a new leader for US Border Patrol
The Trump administration has named a new head of the U.S. Border Patrol
10:50AM ( 1 week ago )
AP Business - Careers
California bill seeks takeover of nation's largest utility
A California lawmaker wants to transform the nation's largest electric utility into a publicly owned company
5:21PM ( 7 hours ago )
Google 4Q revenue grew, but not enough for Wall Street
Google's revenue grew, but Wall Street wanted more
5:08PM ( 7 hours ago )
Stocks rise on Wall Street, but virus worries remain
Stocks rose on Wall Street and across Europe on Monday to recover some of their losses from earlier weeks, but markets are still far from giving the all-clear on the virus outbreak that has spread to more than 20 countries
4:39PM ( 8 hours ago )
AP Business - Corporate News
UK and EU clash over trade with 11 months to make a deal
Britain and the European Union have set out tough opening gambits in negotiating a post-Brexit trade deal
3:34PM ( 9 hours ago )
Stocks rise on Wall Street, but China's main market dives
Technology companies led U.S. stocks higher in midday trading Monday as global markets mostly calmed down following a sharp sell-off last week over worries about the spreading virus outbreak that began in China
11:57AM ( 12 hours ago )
US construction spending dips 0.2% in December
US construction spending dips 0.3% in December and records first annual setback since 2011
10:32AM ( 14 hours ago )
AP Business - Economy
Pompeo message in Europe, Central Asia trip: Beware of China
Secretary of State Mike Pompeo visited on a wide variety of nations in his recent tour of of Europe and Central Asia, but his message stayed the same: Beware of China
12:29AM ( 11 minutes ago )
Trump faces accusers: What to watch during his big speech
President Donald Trump will be facing his accusers Tuesday night during his State of the Union speech
12:26AM ( 13 minutes ago )
The Latest: Iowa precinct chair says voting app had problems
An Iowa precinct chairwoman says she did not use the new app created for caucus organizers to report results because organizers had problems trying to download and test it
12:25AM ( 14 minutes ago )
Super Bowl halftime show draws praise, tears from US Latinos
Latinos across the U.S. took to social media to praise and dissect the Super Bowl halftime performance by Shakira and Jennifer Lopez — two of the world's most popular Latina artists
12:14AM ( 26 minutes ago )
AP VoteCast: Iowa Democratic voters seek fundamental change
The first voters to make their choice in the race for the Democratic presidential nomination are desperate for fundamental change to the political system
12:10AM ( 29 minutes ago )