The Consequences of COVID-19 on Chinese Manufacturing

China Rising

COVID-19, initially spread throughout China, has now spread throughout the world, closing virtually everything. Some countries have gotten the virus under control, while others struggle to get back to normal. Surprising was the speed with which China was able to get the virus under control. For a country that people in the public health sector believed had not built the infrastructure to handle such an event, life there is getting back to normal slowly, but surely. This rapid recovery has significantly benefited the Chinese Manufacturing industry.

Rather than get into the reasons the lockdowns were so much more effective in China, you can watch this excellent video from a Japanese documentarian living in Nanjing, China, where he goes into depth about the measures being taken. They were extreme and probably unjust, but they got the job done.

During the first couple of months, the entire country of China took a hit economically. From late January until about mid-March, virtually all manufacturing was shut down. This labor shortage had a ripple effect – specifically in the healthcare sector, as China manufactures the majority of medical devices and PPE However, this shortage affected far more than the healthcare industry and is still affecting what products are and are not available.

Side Note: Most toilet paper production is domestic as it is cheaper to produce it inside of our own country, rather than import it. We ran out of toilet paper because people went crazy at Costco, not because of China.

Now, that manufacturing is back up and running, China can produce and export goods once again, but, critically, they are one of few who can. Most other manufacturing centers are not open around the rest of the world, forcing the world to turn to China for goods that they may have gotten from places like Mexico, Indonesia, India, etc. Now, in many other parts of the world, they are attempting to stay open. Still, as the virus begins to spread more aggressively, we will either see a labor shortage due to lockdowns in these countries or too many people becoming too sick or scared to continue working. China received an economic head start when exiting the pandemic.

So, why is it a good thing, economically, that the virus hit China first? Firstly, the lockdowns were effective, and their continued efforts at locking down areas with outbreaks helped stifle the virus’s movement around the country. This allows for our necessary goods to be created and exported. Any small to medium-sized business stateside that deals with manufacturing was getting hit with a double-edged sword.

  1. Their in-person customers were not shopping as they once were
  2. Even if their customers continued to buy, the owner likely could not get the correct amount of inventory

Our lockdown in the United States began around the time that China was winding down their containment efforts. In March-April, most people in the states did not leave their homes and were in full preservation mode. Shop owners already did not have any inventory at this point, causing many to wonder how they were going to service their customers. But now, their customers are gone.

While we were entering our lockdown, China’s restrictions were loosening – allowing factories to spool back up and for the suppliers to begin filling the backlog of orders. Once May hit and the United States began to loosen restrictions, the wild consumer began to shop again. And by this time, inventory began to find its way back onto shelves. The equilibrium of products/consumers was never really broken, not in any significant way. For companies that survived those two months with no customers, they were able to get back to relative normalcy. So Chinese manufacturing is positioned to weather the Covid-19 storm with a strong relative advantage.

About Tyler McCain

A student of finance at Georgia State University, Tyler has had a passion for the world of finance for as long as he can remember. Joining the Equities Lab team in 2015 he attempts to juggle the perfect mix of school, work, and giving back to the community. When he isn't working at Equities Lab he can often be found helping teach programs at the Rosen Family Foundation - a non-profit that teaches financial literacy to middle and high school students.

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