Halting China’s Economy Was Hard. Restarting It Is Harder.
SHANGHAI — China is starting to get back to work. More than six weeks after its leaders virtually shut down the world’s second-largest economy to stop a relentless coronavirus outbreak, factories are reopening and offices are starting to fill.
That’s little solace to Zhang Xu. Piles of windshields — some broken, others new and ready to be installed — sit untouched at his car repair shop in a blue-collar neighborhood in Shanghai. One of his two employees is still stuck in a faraway village. But that matters little, because Mr. Zhang has no customers.
“If we don’t get sales, the distributor won’t be able to order more from the factory and the factory won’t be able to produce,” Mr. Zhang said.
Stopping the Chinese industrial machine was painful for China and for the world — and restarting it may be even harder. Factories are well short of full capacity. Even the most successfully restarted cities are only halfway back. Tens of millions of laborers cannot get to work.Even when workers come back, Chinese businesses may find overseas demand slumping for their exports because of worsening coronavirus epidemics in other countries.
Experts warn that Beijing needs to watch for fake restarts: companies that switch on factories to get government subsidies but that produce little or nothing because they lack workers or supplies.
China’s difficulties could hold lessons for other countries looking for answers to the outbreak. Looking for a way to slow the virus without sinking the economy, the United States on Wednesday blocked travelers from Europe, and President Trump has said he wants to get consumers spending more. The Italian government imposed travel restrictions on Monday on the entire country. Other places, like South Korea, have intensified testing and monitoring without trying to shut down their industrial engines.
China is beginning to promote its management of the coronavirus as an endorsement of the authoritarian rule of the Communist Party. On Tuesday, Xi Jinping, China’s top leader, appeared in Wuhan, the center of the outbreak, and declared through official media that “we’ve achieved important interim results” but warned against easing containment measures too quickly.
Unquestionably, China has made progress starting up again. As supply chains in the West began to run dry, airfreight rates from China jumped suddenly last week, according to TAC Index, an air cargo pricing data company in Hong Kong.
“They need to be refilled now,” said John Peyton Burnett, the company’s managing director.
But factories in China are running at 50 to 60 percent of capacity, he said, and other measures show even less activity in many places.
Beijing has unleashed a series of top-down measures to get offices and factories humming again. Bankers describe almost daily phone calls from regulators, telling them to show leniency on debt repayments, particularly from smaller businesses. Insurers have been told to extend policies even when premiums are not paid on time.
The state-owned railway has halved a wide range of freight charges. The national education ministry has created 180,000 spaces at graduate schools next autumn for students graduating this spring with little prospect of a job. Shanghai alone says it has helped residents and businesses with more than $15 billion in loans and other credit assistance, mainly from the state-controlled banking sector.
Those measures face formidable hurdles. Local officials are under pressure to reduce new infections, making them nervous about allowing people to return to work.
Cash-strapped families may also be reluctant to spend. Household and corporate debts are huge after a decade of heavy lending by the state-controlled banking sector. Workers do not know whether their employers can pay them. Businesses do not know if other businesses will default on payments for goods and services.
“Wait for the defaults — they need cash flow and that’s not happening,” said Anne Stevenson-Yang, the research director of J Capital Research, a consulting firm specializing in China. “All that leverage, so little cash.”
More than 50 million migrant workers have not yet returned to their jobs, according to official data. Some remain in quarantine. Others are stranded in rural areas where bus service has not resumed. Many are not yet needed by employers because consumers and businesses are barely spending.
Signs of fraud have already emerged, making it harder for officials in Beijing to figure out what is going on around the country. One scam involves businesses that turn on air conditioning and run machinery with no output, said Cao Heping, a Peking University economist. The goal is to burn enough electricity to qualify for restart subsidies.
“They need to warn the different regions, ‘Don’t do a numbers competition, look at real economic production,’” Mr. Cao said.
Businesses have been under intense pressure from landlords to reopen, sometimes with rent forgiveness as a lure. Rents are often much higher per day than salaries, making it cheaper for companies to open shops with no customers than leave them closed and pay rent.
Most car dealerships reopened by late February but remain largely empty. Car sales in China dropped 80 percent in February from the same month a year earlier.
“In the past, more than a thousand people would enter a dealership in a month, and now only ten groups of people might go into a store in a month,” said Cui Dongshu, secretary general of the China Passenger Car Association. Dealerships are stuck with five months’ worth of unsold cars, he added.
General Motors is only gradually reopening its dozen Chinese assembly plants as demand justifies it and local regulations allow it. Some cities have delayed the resumption of factory production until this week, and businesses are only beginning to reopen in Hubei Province, where most of China’s infections and deaths have occurred.
Factory owners face still one more problem: slowing global demand for the goods China makes. The coronavirus outbreak is threatening global growth, which could slow factories just as they restart. “If the demand shock is not addressed fast, then it could become a problem,” said Mr. Cao, of Peking University.
Until China revs up fully, many people are trying to conserve cash. Shirley Zhuo, the manager at an industrial park in southern Shanghai, said that the site used to demand the various workshops there pay rent three months in advance. Now, it asks for only a single month.
“Because of the ep
idemic, all the orders have been canceled,” she said. “If the orders are canceled, the production cannot be completed, and the venture is shut down.”
On a nearby street, Dai Jianglai fears the imminent failure of her grilled pancake eatery. The landlord forced her to prepay two years’ rent before she opened late last year.
“I was going to interview today for a factory job, but decided instead to try one last time,” she said, standing at the bright orange counter on an almost deserted street at lunchtime. She closed soon after but hopes to reopen next week, when business might be better.
Many workers have not returned to Shanghai. According to official data, large businesses still have less than two-thirds of their workers. Small businesses have less than half.
Gaode, an online mapping and traffic monitoring service, estimated on Wednesday that nearly half of the labor force in big coastal cities was once again commuting to workplaces. In addition, many white-collar workers are working from home.
But in some areas, few are going to work or going shopping. Xu Renzhong, who runs a repair garage a short walk from Ms. Dai’s grilled pancake shop, has no customers — and no mechanics.
“They’re in really rural areas, and the bus lines are shut down,” he said.
Owners of larger businesses, particularly export factories with thin profit margins, fear that if a single employee gets infected, local governments could force them to pay for two-week quarantines for dozens or even hundreds of workers. The government has offered few guidelines for their liabilities.
“We cannot actually say for sure every local government will handle the situation the same way,” said Ray Liu, a partner in the Beijing office of the law firm Dorsey and Whitney.
With business so weak, Mr. Zhang sits every day among his piles of unsold windshields and regrets returning a month ago from his hometown, several hours’ drive from Shanghai.
“If I had known it would come to this,” he said, “I would have stayed home.”
Coral Yang contributed research.