HONG KONG — The world is quickly learning how much it depends on China.
Apple is rerouting supply chains. Ikea is closing stores and paying staff to stay home. Starbucks is warning of a financial blow. Ford and Toyota will idle some of their vast Chinese assembly plants for an extra week.
On Wednesday, British Airways and Air Canada suspended all flights to mainland China, while Delta joined the growing number of carriers reducing service. Japan’s leaders are bracing for a possible hit and the U.S. Federal Reserve is “very carefully monitoring” the situation. Hotels and tour operators across Asia are watching fearfully as the world’s largest source of tourism dollars tightens its borders.
The mysterious coronavirus that has killed more than 100 people and sickened thousands has virtually shut down one of the world’s most important growth engines. Desperate to slow the fast-moving virus, Chinese authorities have extended the country’s national holiday to Monday, and crippled land, rail and air transport. Entire cities have shut down.
An impoverished nation just four decades ago, China has become an essential part of the modern global industrial machine. It alone accounts for roughly one-sixth of global economic output and is the world’s largest manufacturer and trader.
China’s importance goes beyond what it makes. Its consumers buy more cars and smartphones than anybody else. When they go abroad, Chinese tourists spend $258 billion a year, according to the World Tourism Organization, nearly twice what Americans spend.
But it has become so crucial to the operations of U.S. companies that some members of the Trump administration cite that dependence as a justification for the trade war that began two years ago, an economic conflict that is forcing businesses to consider shifting their factories in China to countries with better relations with Washington.
Global companies were reconsidering their China strategies even before the trade war began. Its growth is slowing, its labor costs are rising, local companies are increasingly competitive and the government has become less accommodating. Still, its skilled worker base, extensive highway and rail systems and vast consumer market make China tough to quit.
“What is clear is that businesses were already reeling from multiple sources of uncertainty,” said Sameer Samana, senior global market strategist at Wells Fargo Investment Institute. “It’s one more thing,” he added.
The full extent of the hit to the broader business world is not yet clear. The obvious comparison is to the deadly SARS outbreak 17 years ago, which began in China and killed hundreds globally. In early 2003, SARS slowed China’s growth substantially.
“There will clearly be implications, at least in the near term, for Chinese output,” the Federal Reserve chair, Jerome H. Powell, said during a news conference Wednesday. “We just have to see what the effect is globally.”
Most of China had already been shut down since at least Jan. 24 for the annual Lunar New Year holiday, a weeklong nationwide hiatus. But with the outbreak showing no signs of slowing, many companies are already preparing for a longer slowdown.
“Our members are dealing with varying degrees of disruption in their businesses, including supply chain issues, temporary closings of some retail outlets and factories, and other challenges,” said Jake Parker, the senior vice president of the US-China Business Council, which represents major companies. If travel restrictions and quarantines are expanded or the holiday extended further, he said, “that will amplify these problems.”
Many companies are now looking for temporary stopgaps.
Automakers like General Motors and Nissan plan to close their factories until the week of Feb. 3 to comply with the longer mandated holiday, while Toyota and Ford said last week that they would close some of their factories a week longer than that because of virus-related disruptions. Companies like GM, Honeywell, Facebook and Bloomberg restricted travel for employees in China and established their own self-quarantine measures.
On Tuesday, the Seattle-based coffee company Starbucks said it had closed more than half of its 4,292 stores in China, its second-biggest market after the United States, and said it would take a quarterly and full-year financial hit.
Tim Cook, the chief executive of Apple, said Tuesday that the iPhone maker was looking for alternative suppliers to “make up for any expected production loss.” Foxconn, a Taiwanese company with an extensive network of factories in China that make gadgets on behalf of Apple and others, said its factories would continue to follow the new holiday schedule.
Wuhan in particular appeals to major companies because it is a major national transport hub. The auto industry, including General Motors, Honda, Nissan and many others have set up shop there, and many of their suppliers have followed. It is the home to more than one third of all French investment in China.
On Monday, Jan. 27, PSA Group, the French automaker, said it had set up crisis communications between Wuhan and its Paris headquarters to determine the potential impact on production. The company employs about 2,000 people in Wuhan through its joint venture and was evacuating 38 expatriates.
The Swedish retail giant Ikea, which employs 14,000 people in China, said Wednesday it would temporarily close nearly half of its 30 stores in the country. Employees at the stores will be asked to stay home until further notice with paid leave.
It is not clear how quickly businesses will bounce back. During the SARS outbreak 17 years ago, some factories paid higher wages to bring workers back and get factories humming again.