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Chinese manufacturers return to a new normal

The most recent data, covering the last three months of 2020, confirm that manufacturing is gradually recovering across the world. This follows a major drop during the first half of the year due to COVID-19. However, the recovery rate differs in parts of the world. In some countries, the upturn continues at a more gradual pace. While China has already reached and exceeded its pre-crisis production level.

The latest UNIDO World Manufacturing Report, covering the most recent official data on the state of manufacturing across the world, shows that production in this sector grew by 2.4 per cent in the last quarter of 2020 compared to the same period of 2019. This positive annual growth rate confirms that global manufacturing production regained its pre-crisis level during the last quarter of 2020 after the collapse observed in the first half of the year.

However, the report also shows how the recovery is moving at two speeds. China quickly bounced back and, with a year-on-year growth rate of 9.4 per cent in the fourth quarter, the country has already returned to its pre-crisis growth trajectory.

China's factory recovery from the pandemic

China’s initial recovery

China’s response to the coronavirus outbreak began in December and was ramped up during the Chinese New Year at the end of January. By mid-February, the spread of the virus was deemed to be under control, and factories gradually resumed operations as the government encouraged them to get back to business. However, in the early stage of the recovery, information from the government and supply chains was limited.

Under this cloud of uncertainty, manufacturers responded slowly—lengthening the timeline to get back to normal. By mid-February, the work resumption rate was only about 20 per cent. The government’s strict controls to try to curb the spread of the virus also slowed the recovery of operations. For example, factories were expected to submit applications to have their facilities inspected by local authorities before being allowed to resume production. Migrant workers from outer cities had to go through a strict 14-day home quarantine before returning to work, which delayed full-capacity production by at least three weeks. Transportation controls in cities also created uncertainty surrounding logistics and disrupted the raw materials supply chain.

As a result, many companies, particularly small and medium-sized production facilities, continued to delay restarting their operations while encouraging management to work from home, even after the government officially urged companies to restart in a bid to boost the economy.

The recovery picks up pace

By early March, with key data showing an improvement in the COVID-19 outbreak, manufacturing began to accelerate (see figure 1). Three factors fueled the ramp-up: Lockdown restrictions were relaxed in most areas (except Hubei the provincial epicentre of the outbreak) enabling migrant workers to begin to return to work. Road traffic restrictions began to be lifted, enabling intercity and interprovince logistics services to return to normal. Furthermore, despite a backlog of orders, factories began to fast-track production to meet demand, particularly for export businesses as COVID-19 was beginning to evolve internationally.

More readily available information also helped accelerate the recovery, enabling companies to make decisions and plans based on facts and realistic scenarios. Government aid to boost an economic recovery—including relaxations of social insurance obligations, subsidies for small and medium-sized enterprises, tax waivers, and lower electricity charges—helped ease the financial burden on businesses and allowed people to return to work. As logistics and freight services picked up the pace and as availability and pricing of raw materials became more certain, confidence in the supply chain began to grow dramatically. This boosted confidence in production forecasts and enabled companies to commit to delivery schedules. Finally, real-time information about the dynamics of the epidemic helped factories monitor and improve workplace health and safety to contain the virus.

China is Slowly but surely back to normal capacity

It took China’s manufacturers a month and a half to three months to get back to normal capacity, depending on their location and scale. China’s approach offers some insights into how the rest of the world can shorten the timeline to return to normal as information becomes more reliable and more forthcoming. Now that companies can learn from China’s experience, they are better positioned to mitigate the impact of the virus. Thus, we expect a more compressed timeline—less than three months— as the situation improves rather than the six to eight months that some sources are projecting.

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