In the early 1980s Chinese leader Deng Xiaoping famously instructed the nation to proceed carefully into the new era of economic reform and opening. China was stepping from almost pure socialism into a new arena where markets would rule.
And that looked scary.
“Cross the river,” Deng advised, “by feeling for (the safety of) stones.”
Today, China is applying the same caution as it battles a new risk: the coronavirus. People are returning to work in baby steps and, as a result, business is way down.
The China Automotive Dealers Association conducted a survey of 4,022 members earlier this week. The results were quite startling. Sales through the first 13 days of February were down 95% compared to the same period in 2019. And only 9 percent of dealers were open for business.
Consumers are clearly not venturing out for that new car.
The situation on the production front is not much better. And estimated 32% of the auto and auto parts factories are operational. But almost none are at full strength. The problem: Many workers are still at home conducting mandated self-quarantines.
“All of our plants are open but absenteeism is 50%,” an executive at an American parts supplier told me.
Aptiv, a global auto-tech company with significant operations in China, told Evercore ISI this week that automotive production in China could be down by 40-50% in the first quarter of 2020.
The overall situation entering the third week of February is slightly improved from the stand-still economy of two weeks earlier. But no one is in a hurry to rush things, given the apparently highly contagious nature of the virus.
Restaurants in Beijing are still closed. Flights out of Beijing Capital Airport are down to 400 per day compared to a normal level of 1,600.
Some 170 American firms have now issued warnings that the coronavirus will have an impact on their revenues in the first quarter of 2020. Those companies under duress include McDonalds, Starbucks, Apple, Nike, and Disney.
And Apple has indicated plans to shift some manufacturing of iWatches and iPads to Taiwan.
Look for China to maintain its slow and steady approach to ramping up production. Without question, many firms will experience intense cash flow pressures. There could even be significant job losses.
Font: Forbes
