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China Factory Orders, Exports Plummet as New Virus Cases Pick Up

China has been touted as the positive amid all of the pandemic-prompted problems in the world, having returned to relative normalcy while others are still reeling—but conditions in the country’s manufacturing sector aren’t entirely rosy. And neither is the health situation.

While citizens are tiptoeing back into the outside world and garment workers are reclaiming their posts, China may be facing a new rise in COVID-19 cases, which many believe could be a second wave of infections.

Daily confirmed infections had dropped as the country employed dramatic actions to staunch the spread, but China’s National Health Commission reported 39 new cases of the coronavirus on Sunday, up from 19 on Saturday. Thirty-eight of the cases reported Sunday were imported, meaning China hasn’t been able to stop new people from coming in and infecting its populous.

Guangdong, the center of China’s export-led manufacturing industries, reported six locally transmitted infections over the weekend, which means the spread there could be harder to slow.

The continued dispersion of the pandemic, slowed or not, is posing problems for China’s production orders, which are shrinking and dragging the country’s exports down with them.

In a report Thursday, the China National Textile and Apparel Council (CNTAC), said the country is being hit with similar order cancellations from Western brands whose businesses have screeched to a sudden halt.

“The situation of China’s export textile enterprises being notified by overseas households to cancel orders, postpone receipts, and suspend production has increased significantly,” CNTAC said. “The pressure of China’s epidemic prevention and control has also increased due to changes in the global situation. At present, commercial activities have not yet fully returned to normal, and domestic consumption has not yet rebounded.”

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In the days between March 25 and April 1, 98.4 percent of textile businesses have resumed operations, and 94.6 percent of employees have returned to work, CNTAC said.

But the decline in production orders means just 9 percent of manufacturers are reaching 80 percent of their normal export capacity, and more than 61 percent say their export orders are less than half of what they’d typically have.

“Insufficient orders have become the primary difficulty facing the current production and operation of enterprises,” the report continued. “According to weekly reports and cluster survey data, 80% of enterprises reported that there were insufficient orders this week, which was 23 percentage points higher than a week ago. The entire export industry chain is facing greater operating pressure, and the starting load has shown a downward trend.”

In the United States, textile and apparel imports from China were down 31.7 percent year over year in January, to $2.47 billion. Reports for February, which should reflect a greater impact from the pandemic, are expected out this week.

Sluggish demand and dismal sales have been a factor since coronavirus hit, and textile raw materials and finished product prices are on a downward trend as a result.

“Due to frequent breaches of contract, refunds, rejections, etc., the backlog of raw materials and finished products in textile companies is more common,” CNTAC said. “The continuous decline in market prices has caused increased inventory losses and increased pressure on capital turnover.” More than half of manufacturers are reporting financial difficulty, up 20 percent points from a week before, which indicates, according to the report, “that the financial pressure of small and micro enterprises is particularly prominent.”

Naturally, new orders for factories in China are also falling, and demand is expected to grow weaker as efforts to limit the COVID-19 cases hit spending in the coming months, which, according to an IHS Markit report out Monday, will cause “a renewed dip in activity.”

The expectation is that factory output will ramp up from here because activity can’t be lower than when facilities were shuttered, but the sector could continue to be hard hit.

“By the time more production facilities come back online and up to full capacity, demand for many products will have fallen sharply amid slumping global economic growth,” IHS Markit chief business economist Chris Williamson wrote in the Mainland China market update.

China, where the pandemic began, and a place brands and retailers had already been trying to reduce their exposure, could see more and more countries and companies pull back on placing orders for product.

As IHS Markit vice president Rahul Kapoor told Reuters, “We expect the near-term impact on trade growth in coming quarters likely to be the worst ever, as economies stall and external demand faces imminent collapse on large scale quarantine measures across major economies.”