China’s Factories Scramble – How Covid and U.S. Demand Crippled Chinese Factories
In the Western world, the troublesome worries and effects of Covid-19 have been extinguished by considerable margins in the last year; however, this luxury has not been experienced in several other countries, most especially, in China. In the past several months, China has experienced record infection rates, with one specific week in December totalling on average 37 million new infections a day. A recent report suggests that since the start of the pandemic, the total number of infections in China reached 900 million people, roughly 64% of the population. In accordance with China’s strict Covid-prevention policies, several detrimental effects have begun to plague China’s number one revenue contributor: manufacturing. Not only does China hold the title of the world’s second-largest economy, but they have been the running largest exporter of goods for almost 15 years.
Popular toy maker Basic Fun, the creator of Care Bears and Tonka Trucks, experienced the effects of such circumstances recently. In January, manufacturing workers were advised to not return for a period of almost 3 weeks, causing major disruptions in all Basic Fun’s 20 China-based factories. Even trillion-dollar tech company Apple had its own production issues within factories in China, being a major factor in its revenue miss for Q4. However, Covid isn’t necessarily the largest contributor to these supply chain disturbances. Excess supply and inventories created throughout the U.S.’s stimulated consumer demand cycles during the former half of 2022 have completely inundated several production factories across the country. Seeing as the U.S. is the largest trade partner in China, both countries operate in tandem, with the U.S. providing the demand and China providing the supply. With higher interest rates and inflation diminishing demand across America, China has struggled to fulfil orders that have left surpluses waiting to be sold. As of late, China will either have to adapt their workforces to be able to make steady revenues or take the risk of much larger declines in economic growth.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.