Coronavirus Scare Shutters Chinese Factories — But Factor In Chinese Shoppers Too

Feb 3, 2020
Originally published on February 3, 2020 7:27 pm
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Apple announced this weekend that it is temporarily closing all its stores in China. That's in response to the coronavirus outbreak there. China not only assembles most Apple products; it is also a major market for the company, accounting for about 15% of Apple's total sales. A lot of America's big brands, from Levi's to Tesla, are in the same boat, with the virus dealing a double whammy to both production and sales in China. NPR's Scott Horsley reports.

SCOTT HORSLEY, BYLINE: You probably know that a lot of the products you find on the shelves of Walmart in this country are made in China. What you may not know is that Walmart operates more than 400 stores in China, and sales there have been growing fast. Likewise, Nike not only relies on China to manufacture a lot of its shoes and athletic apparel; it counts on Chinese customers for nearly 1 in every $6 in Nike sales.

Nick Lardy of the Peterson Institute for International Economics says a lot of what U.S. companies make in China is now aimed at Chinese consumers.

NICK LARDY: I think a lot of people have this idea that China's a great place for companies to manufacture things and then export them to the rest of the world. And there is a lot of that, but about half of what these companies are making is sold domestically.

HORSLEY: In other words, Lardy says, China's no longer just the world's workshop. It's increasingly the world's shopping mall, with 1.4 billion customers with more and more money in their pockets to spend.

LARDY: Living standards have been rising. Real wages have been going up. Combine that with what is still fairly rapid growth. That's what's driving consumption in China.

HORSLEY: That consumption has suddenly dried up, however, with tens of millions of Chinese shoppers under quarantine and many others hunkered down at home. Starbucks announced last week that it's temporarily closing more than half its 4,000-plus stores in the country.

Chief financial officer Patrick Grismer says the financial hit is hard to know.

PATRICK GRISMER: The business impact is largely a function of two things - the number of stores closed and the duration of closure. And with respect to the duration of closure, you know, it's not entirely in our control.

HORSLEY: Meanwhile, many Chinese factories which would ordinarily be reopening this week after the Lunar New Year holiday are expected to remain closed for at least another week and possibly longer.

IAN SHEPHERDSON: There is going to be a substantial loss of business for a period of time. There's no question about that.

HORSLEY: Chief economist Ian Shepherdson of Pantheon Macroeconomics says over the last two decades, many American companies have found it profitable and fairly easy to rely on China for both component parts and finished products. But, like the steep tariffs imposed by the Trump administration, this outbreak will test that assumption.

SHEPHERDSON: We're now learning that there are flaws in the system. There are risks in the system. There are vulnerabilities in the system. And those things have all been exposed now by, firstly, the trade war and now, of course, by the coronavirus.

HORSLEY: The big question mark, of course, is how long this coronavirus outbreak last. If it levels off soon, the damage will likely be contained, with both factories and consumers quickly making up for lost time. But Peterson's Lardy says that's a big if.

LARDY: I think if the outbreak lasts longer and businesses cannot reopen throughout China, the impact could be substantially larger. And I think - I don't think we'll know the answer to that for at least two to three more weeks.

HORSLEY: Shepherdson says the new phase one trade agreement with China had finally offered U.S. manufacturers some certainty about what's ahead, contributing to a factory rebound in January after a five-month slump. Now, with coronavirus, all bets are off again.

Scott Horsley, NPR News, Washington.

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