The Coronavirus pandemic has forced thousands of companies to throttle down or temporarily shut assembly and manufacturing plants in the U.S. and Europe, especially those which rely heavily or solely on factories in China for parts and materials. This is because China is a primary stakeholder in innumerable global supply chains. Hence, the outbreak has caused delay and disruption in the same. Exports of electronic components from China to North American countries, specifically the U.S. and Mexico, have declined by more than 50%. The outbreak could result in a $US 50 billion decrease in exports across global value chains, according to estimates published by UNCTAD.
In February, China’s Purchasing Manager’s Index (PMI) – a critical production index – fell by about 22 points to 37.5, the lowest reading since 2004. Such a drop in output implies a 2% reduction in exports on an annual basis. A slowdown in Chinese production has repercussions for any given country depending on how reliant its industries are on Chinese suppliers. Today, a large share of global supply chain networks are heavily integrated within the Chinese borders, as it is a top supplier of intermediate inputs in many manufacturing cycles, especially those related to precision instruments, machinery, automotive and communication equipment. In fact, China’s production share in different manufacturing verticals such as Hi-Tech goods, machinery and pharmaceuticals are as high as 46%. Therefore, any significant disruption in China’s supply in these sectors is bound to affect producers in the rest of the world substantially. The strict measures that have been put in place to contain COVID-19 are hindering the supply of critical parts and the required skilled labor from Chinese producers, therefore affecting the output of manufacturing firms worldwide.
