U.S. Companies in China Warn 2020 Revenue Could Halve If Coronavirus Persists

Date: Thursday, February 27, 2020
Source: The Wall Street Journal

Businesses struggle as travel restrictions, protective gear shortages weigh on workforce, productivity, survey finds

Some American companies say they could lose as much as half their annual revenue from China if the coronavirus epidemic extends through the summer, as businesses struggle to get boots back on the ground amid travel restrictions and shortages of basic protective gear.

Nearly half of U.S. companies in China said they expect revenue to decrease this year if business can’t return to normal by the end of April, according to a survey conducted Feb. 17 to 20 by the American Chamber of Commerce in China, or AmCham, to which 169 member companies responded. One fifth of respondents said 2020 revenue from China would decline more than 50% if the epidemic continues through Aug. 30.

Work-from-home policies had been implemented by 94% of the responding companies, but businesses that require workers on-site said travel restrictions had created burdensome delays.

On Tuesday, China imposed restrictions on travelers arriving from abroad, requiring quarantines for those traveling from outside the country amid rising infections in EuropeSouth Korea and Japan.

American companies cited global travel disruption as their biggest obstacle to business and said reduced productivity and employees’ inability to get to work are among their greatest challenges. Inside China, travel-restriction policies and mandatory quarantines aimed at preventing the spread of the virus have left many migrant workers homebound even as China tries to restart its labor force.

“The crisis is real, and people are prioritizing the virus first and resumption of the economy second. Getting protective gear and getting it in the quantities necessary to keep the workforce safe is a challenge for a lot of companies,” AmCham Chairman Greg Gilligan said in an interview.

While many white-collar employees in China have been able to work from home, the country’s 291 million migrant workers who live in rural areas but work in cities—typically in jobs that require their physical presence—have struggled to return to work. Fewer than one-third have done so, China’s transport minister said recently, estimating that the last migrant workers could return in March. China’s State Council has called on regions with lower incidence of the virus to resume full production.

Separately, in a joint survey by the European Union Chamber of Commerce in China and the German Chamber of Commerce released Thursday, 90% of companies reported that the virus has had a medium to high impact on their business.

Half planned to lower annual business targets and nearly half forecast a double-digit drop in revenue for the first half of 2020. The survey, conducted Feb. 18-21, received responses from 577 member companies. The largest portion of businesses were in the industrial and machinery sectors where staffing issues are crucial to returning to full production.

The chambers said the situation is likely to encourage firms to diversify supply chains and that governments would ask companies in certain industries considered vital to national security to move production lines closer to home.

“Everybody is impacted,” said Dr. Stephan Woellenstein, chairman of the German Chamber of Commerce in North China. “There is literally no one who says it isn’t impacting me at all.”

More than half of companies in the AmCham survey said they are prioritizing staff safety over business performance, but that a lack of supplies caused by global panic-buying of masks—required for many factory jobs—hand sanitizer and other protective gear has made that difficult.

About 40% of the companies said they were revising annual budgets, with 33% cutting costs. While most respondents said it was too soon to determine the loss to revenues as a result of the delays, 10% of the businesses estimated they were incurring losses of at least 500,000 yuan ($71,000) a day.

In China’s Hubei province, the epicenter of the outbreak, problems are more acute. Workers attempting to move across provincial and city boundaries face several layers of checkpoints and paperwork to commute to work. They also are required to have protective gear and coverings in sufficient quantities throughout their commutes at a time of persisting shortages. Some employees from the province are dealing with several regulatory bodies daily, including party-appointed neighborhood committees tasked with determining who is safe to leave and enter their homes.

Thirty-five percent of companies surveyed said they had facilities in Hubei—including manufacturing, distribution and research-and-development facilities—with another 36% with facilities in surrounding provinces affected by the virus.

“Anyone who survives and gets through this will have encouragement from the government to not reduce wages and employment,” AmCham’s Mr. Gilligan said. “It’s really a matter of who can make it through.”

Corrections & Amplifications
In an AmCham survey, 10% of businesses estimated they were incurring losses of at least 500,000 yuan a day. An earlier version of this article incorrectly stated that they estimated they were incurring losses of at least 50,000 yuan a day. (Feb. 26, 2020)

 

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