China’s tough choices: Contain the virus or support the economy?

Sichuan, China: Fighting a war on two fronts is never easy. But that is the situation facing China‘s government: It is trying to contain the country’s worst viral epidemic in 17 years, while also attempting to prevent its enormous economy from suffering a painful slowdown.

Meanwhile, hundreds of millions of workers want to return to their factories and offices – many of which stay shut following an extended Lunar New Year holiday – so that they can protect their livelihoods. But they remain stuck in far-away regions with transport links hobbled.

The coronavirus outbreak that has now killed more than 1,000 people over the past month continues to spread, infecting people not just in China but in many neighbouring countries too. And allowing workers to return could help it spread even faster.

“I just got updated by my company and we won’t go back to work until around March 1,” said Xin, a purchasing manager at a company that produces pipeline materials in Zhaoqing in China’s southern industrial powerhouse region. Like many others, he declined to give his full name for fear of reprisals.

“But what the staff are concerned and worried about now is salary,” he told Al Jazeera. “We will be paid (during the downtime), but it will only be at the very basic salary level.”

Recent media reports suggest that Chinese President Xi Jinping is concerned that overly restrictive measures to contain the virus, including curbs on road, rail and air travel, are hurting the world’s second-largest economy.

Managing expectations

At least two economists at government-linked think-tanks have projected a loss of up to one percentage point from China’s growth rate in the first quarter of 2020 and even for the full year, a potentially troubling development for an economy that was already slowing down.

China’s economy grew by 6.1 percent over the whole of 2019, its slowest expansion since 1990. For the fourth quarter, gross domestic product (GDP) grew by 6.0 percent compared with the same period a year earlier.

Some private forecasters have even more dire predictions. United States-based lender Citi is now forecasting growth of just 3.6 percent in the first quarter.

But officials at provincial and district levels are also tasked with keeping the numbers of infections down to a minimum, and imposing curbs on places where people come into close contact with each other, such as the transport network and workplaces, is the most effective way of ensuring that. And those restrictions are hurting some of China’s most economically productive regions.

While that situation persists, global supply chains of everything from eyeglasses to cars, chemicals, batteries and electronic components remain crippled.

“The instructions that we know Xi Jinping issued, are in a way in deep contradiction with each other,” Victor Shih, associate professor of political economy at the University of California San Diego, told Al Jazeera by phone.

“If the authorities are really doing everything possible they can to prevent new cases, then they would have very stringent measures to prevent migrant workers coming back in,” Shih said. “But that, of course, will hamper economic activity.”

Locked in

Fear, uncertainty and government measures are keeping many of the nearly 300 million migrant labour workforce in place in their hometowns and villages, where they travelled to before the Lunar New Year holiday, which was originally scheduled to last from January 24-30.

Some migrant workers say they are genuinely afraid of contracting the virus and so do not mind staying in their hometowns. They are unsure whether they will be able to get access to healthcare if they fall sick.

That suits local governments that are trying to contain the rapid spread of the COVID-19 virus.

They are barring many workers from returning to large manufacturing regions such as China’s Greater Bay Area in southern Guangdong province. Many of the cheaper forms of transport such as slow trains and long-haul buses that usually bring workers back after the Lunar New Year holiday remain restricted by authorities.

And a system of internal travel and residency permits also ensures that migrant workers stay put. Village committees are reluctant to issue permits for people to leave, while restrictions in cities near important factories block those without local residence permits, social insurance and long-term accommodation from entering.

“The restriction of labour movement will hurt auto manufacturing in Hubei province and heavy manufacturing industries in provinces such as Shandong, Jiangsu, Zhejiang, Fujian, Anhui and Guangdong,” Le Xu, a senior research analyst with Wood Mackenzie said in a note released late on Wednesday.

Those restrictions are already known to be impacting some economically important manufacturers. Foxconn, the world’s largest contract electronics manufacturer and a key supplier for Apple’s iPhones denied media reports that it plans to resume operations by the end of February.

“The welfare of our employees continues to be a top priority for Foxconn,” the company formally known as Hon Hai Precision, said in a statement on February 8. “We are also working with the local governments to facilitate the necessary preparations for our employees to safely return to work. The operation schedules for our facilities in China follow the recommendations of the local governments, and we have not received any requests from our customers on the need to resume production earlier.”

Operating on the edge

Analysts say an even bigger issue is that thousands of small- and medium-sized factories, assembly plants and facilitators of global supply chains in those key manufacturing areas remain out of action.

“A lot of these smaller companies are already operating on very thin margins and many of them have taken on a lot of debt,” Shih said. “So even a few weeks of not having any business, not having any cash flows will potentially bankrupt these companies. This is why they don’t pay their workers because they literally don’t have the money.”

Many such plants either remain shuttered or are only slowly cranking up their activities.

A marketing and sales worker at a Dongguan-based company that produces candies and snacks told Al Jazeera that office staff like her have been encouraged to work from home and will likely return to the office next week.

Production restarted at the facility on February 10, though its migrant workers have been slow in returning, and the company has yet to release a policy concerning returning workers, said Chen, who also declined to allow the use of her full name or her company’s name.

“At present, most of our workshops have been running at 30 percent capacity, but that number may go up to 50 percent after this week,” she said.

It is a similar story across the Greater Bay Area.

“We’re only at 40-percent capacity,” Lin, a manager at a key packaging materials company in Shenzhen, told Al Jazeera. “Since some areas are still locked down, it is hard for people to get back.”

‘Collective action’

Even if the virus outbreak clears up within the three-month period during which authorities in Beijing are providing assistance to companies – such as tax breaks and other stimulus measures – the economic problems could persist for longer, analysts say.

Many workers may not be paid, get laid off or lose holiday time even if they work from home.

“The authorities are already trying to find a way to resolve those kinds of arbitration issues with employees, and kind of fast track [how to deal with] that possibility,” Geoffrey Crothall, director of communications at China Labour Bulletin, a non-governmental organisation that monitors labour issues in mainland China, told Al Jazeera by phone.

“There’s also a likelihood that workers that are let off without pay will eventually start taking collective action again,” Crothall said. “I think when things settle down, if people are owed three or four months wages, or if a company is not paying their social insurance or pension contributions, I’m sure you’ll see more protests related to that.”

Diversify to survive

While global companies with international supply chains can do little to escape the short-term disruptions to their China operations, the long-term message to them is clear, says the University of California’s Shih: Diversify.

“This is yet another reason for a lot of foreign companies, especially those based in North America and Europe, to really try to diversify their supply chains,” Shih said.

“With global warming and with the advent of cheap airline and transportation infrastructure, you will have the potential for pandemics breaking out, not just in China, but other developing and maybe even advanced countries,” he said. “So the more diversified a company’s production chain is, the better they are able to weather these different shocks.”

But the prevailing sentiment among the business community right now is the thing they hate the most: Uncertainty.

While it is tempting to compare the current outbreak to the severe acute respiratory syndrome (SARS) epidemic of 2002-2003 – from which the Chinese economy rebounded fairly sharply – the biology of the COVID-19 virus could take the country along a different trajectory.

“It is really too early to tell how things will pan out the next few weeks,” Harley Seyedin, President of the American Chamber of Commerce in South China told Al Jazeera. “If SARS was to be used as a gauge, I expect the virus to work its way out as the weather gets warmer.”

“However, travel will remain at minimum levels based on necessity,” Seyedin said. “Factory work continued during SARS and I expect that things will be back to full speed in a month or so as a backlog will continue to be created by the extended holiday and lack of availability of transport for workers to return. This is all, of course, if the virus does not suddenly surge beyond expectations.”

Additional research and reporting assistance provided by Jonathan Zhong.