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China Says Some Factories Have Resumed Production—But Are Supply Chains Out of the Woods?

According to China, industries in certain parts of the country have started returning to work “in an orderly manner,” amid ongoing efforts to contain the deadly coronavirus officially known as COVID-19.

More than 400 enterprises in Xi’an, an industrial base in China 485 miles away from the eye of the coronavirus storm in Wuhan, have reportedly resumed production, per data released Friday by the Xi’an Bureau of Industry and Information Technology. More than 75 percent of the city’s major manufacturers are said to be producing product again, albeit at a slow clip.

“Production capacity has also been gradually restored, as nine large enterprises with production and sales of over RMB 10 billion [$1.42 billion] have fully or partially resumed production, such as Shaanxi Automobile Holdings Limited and Samsung (China) Semiconductor Co. Ltd.,” the bureau noted. Xi’an, according to the statement, has also “recently introduced a number of measures to help enterprises pull through the difficult times and speed up their resumption of production, such as optimizing government services, delaying social security payments, stabilizing employment with subsidies and increasing credit support.” The local government has also taken to giving factories rent exemptions and aiding in market development.

The bureau didn’t specifically call out Xi’an’s garment manufacturers, but there are apparel factories in the region that could be trickling back into operation.

With strict coronavirus prevention measures in place in China (like quarantine, observation, nucleic acid testing and environmental decontamination), the resumption of production has been focused on “urgent market needs” first. Automatic transmission manufacturer Shaanxi Fast Auto Drive Group, for example, has restarted particular production lines, like gear processing, where demand is the highest. Micron Semiconductor “has restored 80 percent of its production capacity,” the bureau said.

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In order to improve the logistics situation—which has been facing bottlenecks amid the backlog brought on by partial port closures and limited workers—China’s largest inland port, the Xi’an International Trade & Logistics Park, has established what it’s calling a green channel service.

“With the service, trucks do not need to stop, drivers do not need to get out of their cockpits, and traffic does not need to wait outside of the station,” the bureau said. “Epidemic prevention measures are fully implemented, such as disinfection and decontamination, temperature measurement and registration. All these measures help ensure the smooth operation of the China-Europe Chang’an freight train service.” That service, for context, has slowed significantly in light of the coronavirus, from making 200 trips in January to just one trip per day at present.

Ask other sources and the supply chain situation in China—and beyond—isn’t as “orderly” as the Xi’an Bureau describes.

While some factories may be partially back in business, the spillover effect resulting from a raw materials production freeze is plaguing companies manufacturing in China and in neighboring countries as well.

European companies manufacturing in China are facing disruptions to their supply chains, and many are mulling new sources for inputs, according to the European Union Chamber of Commerce in China. But while they wait out alternative options, they’re facing challenges at the local level when it comes to resuming production operations, even though the country’s central government has given the OK.

“We have a lot of companies in industrial parks that want to get back to manufacturing and producing their goods but they’re being requested to provide all sorts of statements and documents that has created a lot of confusion right now,” Adam Dunnett, secretary general for the EU’s China Chamber of Commerce, said on CGTN’s The Point. “Basically, companies are having to sign off on statements saying that they take legal responsibility for any abnormal circumstances that could have an impact locally.”

Factories looking to resume production are being asked, according to Dunnett, to provide statements detailing emergency plans to contain the virus or ensure workers have been properly screened or quarantined, to assure industrial parks and local authorities that their business operations won’t prove a threat to the area’s health and safety or do anything to further spread the virus. In “many cases” Dunnett said, the newly required paperwork is being rejected on initial submission. That process is only adding to the delays in getting production lines back to running at capacity.

Stretching beyond China, the impact at factories in countries nearby could be detrimental if manufacturers can’t procure the necessary raw materials.

Local news reports have estimated hold-ups at factories in Vietnam, which relies heavily on raw materials supply from China, could contribute to as much as two-week delays in shipments to international brands like Uniqlo, Gap and Nike, which make product there. Uniqlo, according to the Nikkei Asian Review, has already delayed the launch of certain new product lines.

Cambodia is suffering a similar fate with production in jeopardy over input supply.

“While Vietnam can produce textiles itself and can maintain certain production levels, the impact may be bigger in countries such as Cambodia that are more dependent on Chinese production of textiles,” a source familiar with Uniqlo told the Nikkei.