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China’s Supply Chains and Coronavirus: What’s Next?

While some sectors in the global manufacturing hub will take a hard hit, others could find room for potential growth.

Snap Chart

China’s Supply Chains and Coronavirus: What’s Next?
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Previous experience with 2003's SARS epidemic in China suggests that it usually takes three to six months after containment for manufacturing and logistics to bounce back to pre-outbreak levels. But although China has seen incremental improvements in supply chains as employees return to work following COVID-19 containment, a fast V-shaped recovery is becoming less likely by the day.

The COVID-19 pandemic has spread faster and farther than its predecessors, with more stringent lockdowns and travel regulations. As a result, local and multinational manufacturing and logistics companies are facing a range of difficulties—including labor shortages, struggles to ramp up manufacturing capacity, road closures and tight cash flows—not to mention the cascading effects for companies around the world.

The short- and long-term implications of these challenges vary per sector (hover over the sectors in the chart above for a deeper dive). Overall, industries that have been directly hindered by the pandemic, such as logistics, will suffer the sharpest blow; others, such as machinery manufacturing, may be only moderately affected. Pandemics tend to delay the investment cycle, but purchase decisions mainly depend on long-term economic growth. As a financial crisis for small and medium-sized enterprises becomes more likely, however, the threat of a longer economic slowdown looms large (for the latest on the pandemic’s economic impact, check our Situational Threat Report Index).

On the other hand, several forces have positioned certain sectors for potential future growth. The booming stay-at-home workforce, rising awareness of public health and surges in online shopping are a few trends that promise to reshape consumer behavior and business operations in the long run. Companies that are able to weather the shocks and respond to growing demand could find sustainable success.

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As the global pandemic deepens and the human cost of Covid-19 rises, the novel coronavirus outbreak is sending shocks through the world economy. But across industries, companies can take action now to protect their employees and customers and minimize the economic damage.

Bruno Zhao is the head of our Greater China Advanced Manufacturing & Services practice. Helen Liu is a partner in our Advanced Manufacturing & Services practice. Both authors are based in Shanghai.

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