Coronavirus is Drying Up the Supply Chains of Southeast Asia’s Factories

Coronavirus is Drying Up the Supply Chains of Southeast Asia’s Factories

Even as China pushes factories to reopen, the ripple effects of Covid-19 have already proved inescapable for manufacturers outside the country. Particularly hard hit is Southeast Asia, where industries that depend on China for raw materials are being hobbled as their supplies dry up.

In Cambodia, the government today warned about 200 factories making mostly clothing will probably have to slow or cease production entirely due to a lack of raw materials. China—the world’s biggest textile exporter—provides more than 60% of the materials feeding Cambodia’s garment and textile factories, according to the country’s association of garment manufacturers. Prime Minister Hun Sen has publicly urged the Chinese ambassador to send more materials by ship and plane so the industry won’t have to shut down.

Vietnam is facing similar situations in its garment industry and beyond, with China being a major supplier of steel and components for electronics. “Car, electronics and phone manufacturers are experiencing difficulty in acquiring supplies and materials due to disruptions from the virus,” an agency representing Vietnam’s manufacturing sector told Reuters. Phone maker Samsung, which manufactures in Vietnam, is among the companies facing a serious production slowdown. Even the furniture industry, which gets component parts from China, is under duress.

In Myanmar, factories are reducing hours or pausing operations because of the reduced materials coming from China. “Besides garment factories, factories making shoes and bags rely on raw materials from China,” U Aye Thaung, chair of a committee representing an industrial zone in Yangon told the Myanmar Times today. “Those that still have raw materials are operating so far, but factories that have run out have ceased operating.”

The stakes are greater than production delays. The livelihoods of factory workers in these countries may be at risk if the factories employing them aren’t able to resume normal business soon. In Cambodia, for example, the garment industry is the country’s biggest employer and provides the majority of its factory jobs. The labor ministry said if the shortage of raw materials from China drags on, as many as 90,000 workers could see their jobs suspended by the end of March, according to the Khmer Times. Workers in such situations may not have the savings to tide them and their families over until work resumes. Sen announced a plan for garment workers whose factories closed to receive 60% of the minimum wage, with 40% being the responsibility of the factory owners and 20% provided by the government.

How quickly firms in these industries recover may depend on their size, if they recover at all. “If you’re the big guys then no problem,” Liang Kuo-yuan, president of Yuanta-Polaris Research Institute, told Voice of America. “Yet if you’re the small and medium-sized firms, you can’t hold out and then you face the issue of bankruptcy.” Vietnam’s central bank has ordered its commercial banks to reduce, delay, or even eliminate interest payments to help companies dealing with losses from the coronavirus outbreak.

Quartz