After months dealing with the coronavirus, many Chinese factories are still operating below full capacity, but have been gradually ramping up production over the last several weeks as government data suggests the country's pandemic curve has flattened.
However, according to Bloomberg, there is a serious problem developing. The virus crisis, which is locking down the Western Hemisphere, has resulted in firms from Europe and the US to cancel their Chinese orders en masse, triggering another economic shock that is hurting China's industrial base.
A manager from Shandong Pangu Industrial Co. told Bloomberg that 60% of their orders go to Europe. In recent weeks, manager Grace Gao warned that European clients are requesting orders to be delayed or canceled because of the virus crisis unfolding across the continent. Gao estimates that sales in April to May could plunge by 40% over the prior year.
Therefore, the pandemic across the world will affect China manufacturing through two channels: disrupted supply chains and declining external demand. With orders canceled, supply chains disrupted, and payments delayed – the road to recovery in China is going to be a bumpy one at best. Overly optimistic analysts who are predicting a V-shaped recovery in China for the first half of the year are likely to be wrong.