China’s Extension of New Year Holidays May Trigger Supply Chain Disruptions

Several Chinese provinces and cities, including Shanghai, Guangdong, and Jiangsu, have ordered businesses closed during the week-long Chinese New Year vacation, not to resume operation until February 10.

In Hubei province, the outbreak’s epicenter, businesses will remain shut until February 14, a two-week extension of the Chinese New Year holidays.

That has worried many China-based businesses, including those from Taiwan, as they have begun to gauge the possibility of disrupted supply chains if China fails to contain the viral outbreak soon.

Supply Chain Disruption

Taiwan has close economic ties to China. Lots of key components and panels are made in China especially in Wuhan � a major manufacturing site for information technology products. We’re mostly worried that delayed resumption of factory operation will trigger supply chain disruption, Tsai Lien-sheng, secretary-general of Chinese National Federation of Industries in Taipei, said.

According to Tsai, Taiwan has 50,000 businesses operating in China, 1,000 of which are based in Wuhan, and more than 2 million people working and living there.

Following China’s decision to extend the holidays, many Taiwanese manufacturers have been rescheduling order deliveries for their customers or reallocating orders to assembly lines outside of China.

Not everyone can adapt quickly, Tsai said.

Order Reallocation

Those which have diversified its assembly lines globally are able to adapt. If their China operation ceases, assembly lines in Vietnam or elsewhere will take over. But what worries us is that not every business has the ability to reallocate orders. Thus, we hope the outbreak can be soon contained, he added.

ABC Taiwan Electronics Corp is one such company, which can now quickly adapt, having moved its assembly lines out of China, including to Malaysia and even back to Taiwan because of the U.S.-China trade war.

According to its chairman, Joseph Hsu, the company is doing what it can to mitigate the outbreak’s harmful impact and is confident about fulfilling orders, even if its China-based assembly lines are disrupted in the near term.

Nevertheless, he has concerns.

We’re resilient. But some of our old products can only be manufactured in China, which poses a unique challenge to us. It’s troublesome, but we’re trying to work out a solution, Hsu said.

He also warned that China’s semiconductor industry may take a bigger hit than expected as it is mostly based in Wuhan. That, however, may end up helping its Taiwan counterparts if orders begin to be shifted outside China.

Consumer Industries Affected

To American businesses operating in China, the extension of the holidays certainly means bad news but it shows that China is taking the right move to contain the outbreak, said Ker Gibbs, chairman of American Chamber of Commerce in Shanghai.

The 14-day [break] certainly doesn’t help in terms of business performance. But it’s probably going to be more of the fact that people aren’t comfortable going into retail centers, entertainment centers, large places where people gather, all of those kinds of things, he said.

The European Chamber of Commerce in Shanghai also said, in a press statement, that it is possible that the economic cost this time around will be slightly higher [than that during the 2003 SARS outbreak], due to the increased weight of China in global GDP growth, the new stronger role of private consumption in China and the virus breakout having been more easily spread during the holidays.

Outside of China, economic ripples may hit Europe through everything from supply chain disruptions to a sharp drop in tourists,” the chamber added.

Consumer Industry Downturn

Without doubt, Chinese consumer businesses have suffered a downturn as people stay home and shops remain closed.

Because of cancelled Chinese tourist travel, Taiwan’s Lion Travel Service Co. said in an exchange filing on Thursday that it has incurred $8.6 million in losses as of January 29.

Meanwhile, Taiwan-based bakery cafe chain 85C said, in an exchange filing Thursday, that one-fourth of its nearly 600 Chinese stores would not resume business until February 10.

There is, however, a potential benefit for Taiwan, Asia’s second-largest cruise market.

Taiwan’s Chinese-language Liberty Times reported Wednesday that Royal Caribbean International’s Spectrum of the Seas cruise ship is considering moving its Asian hub from Shanghai to Taiwan in mid-February because of the viral outbreak, but Lee Chi-yueh, the chairman of Chung Hsing Travel Service, the cruise liner’s local agent, refused to confirm the news to VOA.

Source: Voice of America