Update 2020-02-10
In addition to the earlier published letter, hereby an update.
Today the measure of the official extension of the national Chinese New Year holidays taken to tackle the outbreak of the Coronavirus has ended. Today companies are, by the earlier taken measures, allowed to resume their operations and business activities. Some local governments have extended this till the 1st of March or postponed this with certain days till the 15th – 17th of February. Some companies decided by themselves to postpone their openings up till the 2nd of March, depending on their own considerations.
Index
1.01 – The main advice of all governmental institutions
1.02 – Additional policies
1.03 – Quarantine room per working employee
1.03 – 14 days quarantine
1.04 – Closing compound and centralizing entrance
1.05 – Implications with allowing visitors, consultants or non-contracted workers
1.06 – Sanitary and health protection measures
1.07 – Personal pre-registry by APP
1.08 – Personal registry and quarantine
1.09 – Quarantine by your home compound committee
1.10 – Differences per area or officer
2.00 – Economic implications
2.01 – No delivery of products
2.02 – No stock means no sales
2.03 – No other option than China
2.04 – What can you do?
The past week we have seen that local governments are at first following central governmental measures but additionally implemented their policies. Policies which are very different per municipality or even city districts.
1.01 – The main advice of all governmental institutions
Beside the taken measures, it should be stated that all governments have asked the companies to allow employees to work from home if they can. Additionally, asked to make the colleagues able to work at home if their kind of work allows.
1.02 – Additional policies
The additional policies per area make that companies might be, by the earlier taken measures, allowed to resume work again. However, this only if they also comply with the additional policies set. Examples of additional policies to which companies need to comply to named below.
*Additional measures differ per area, governmental institution and company. For any company there may be different policies in place.
1.03 – Quarantine room per working employee
Many local governments are additionally requiring companies to have arranged a quarantine rooms. Some regulators required a quarantine room per working employee. In case an employee has been judged infected or shows symptoms during working days. We have mainly been informed about this measure by factories and companies that run with a higher amount of employees.
A quarantine room per worker is for these factories a significant burden due to the number of quarantine rooms they need to prepare. This measure means that with 80 workers the company will need to arrange 80 quarantine rooms. We have been informed that this will encourage companies to first start with a smaller number of employees to start-up operations. That makes them able to start but only to produce at minimum output.
1.03 – 14 days quarantine
Some local governments require employees coming from outside of the municipality to stay in home-quarantine for 14 days. This is required before they are allowed to resume work at company locations such as offices and factory plants. The home quarantine can be proven by the employee’s compound committee which can provide an official letter of quarantine statement to the employee.
1.04 – Closing compound and centralizing entrance
For factories, warehouses and for example logistic companies it is required to control the monitoring of the personnel on the company’s compound. The employer should at all time check the temperature of those who enter the factory ground. A central entrance and exit should be created to ensure monitoring the people coming in and out. For many companies that means that they need to arrange all tools such as temperature guns and related products to monitor health data. It also means that companies will have difficulties with any activity that normally goes in and out of an entrance of a building. Think about loading containers or receiving supplies. These subjects seem not fully overthought in these measures taken.
1.05 – Implications with allowing visitors, consultants or non-contracted workers
With these measures’ implications in operations will arise. Many companies made use of non-contracted employees. Think about daily workers or just workers who were working without a contract. Many employees still never have been registered as an official employee, which would have required the company to pay social insurance and taxes. The only workers that are allowed to work in the company are employees who are registered to be working in the company. Small factories and other less professional managed businesses will be hit hard by this situation, as they normally choose to work with employees who accept no contract at all. Which means that their cost will rise if they will need to register now all employees if they want to start operations again. In this case, costs will rise due to the situation that they then need to pay social insurance and tax over their employees which they never did before.
This will also cause implications for consultants and third-party labour. Think about customers who are not allowed to visit the company. For now, customers are in many cases not allowed to inspect their goods or hold meetings at the company ground. As they are not allowed to enter if they are not registered as employee. Automatically this will also apply to third-party inspectors. Which means that production can start but the goods may not be inspected for now.
1.06 – Sanitary and health protection measures
In many local governmental area’s companies are required to have enough masks, hand-alcohol and other health-protective supplies on stock. It seems to vary per local government and government inspector how many you should have in stock per employee. We have been informed about at least one mask per two hours per working person. From other sources we received requirements of two masks per worker per day. Also, sanitary facilities should be arranged to be able to wash hands properly.
1.07 – Personal pre-registry by APP
In the most first-tier city areas, the local government requires people to apply to a central mobile APP. In case you are entering the city, you will need to pre-apply in the application to be able to enter the city via public transportation stations or highway exits. If you did not apply to the system before arriving at the exits into the city, your entrance will be rejected. In some cases, these applications are also requiring people to daily fill in health information. To monitor people’s health from distance.
1.08 – Personal registry and quarantine
When you have registered to the available APP’s, there is a registration of you being in the city. Some cities require citizens that came from outside of the city or area to self-quarantine themselves for 14 days before they are allowed to start work again at company locations. They are allowed to work from home, however, they are required to be in quarantine for 14 days. In Guangzhou, this policy applies to people that have been in or travelled from Hubei province. In Shenzhen, this measure counts for all people that come from “infected areas” from outside of the city. As all areas in China have infections, this would mean “everyone coming from other cities to Shenzhen”.
1.09 – Quarantine by your home compound committee
In some areas, your compound (Village, flat building or cluster of buildings) where you live requires you to be in self-quarantine of 14 days. That means you are required to stay home for 14 days when people have returned from their hometowns or holiday. To make sure that there is no risk to other people in your compound. This influences also your ability to resume work again and will require to stay home if you want to receive a proof of quarantine from your compound community committee.
1.10 – Differences per area or officer
We can conclude that different provinces, cities and area’s have different kind of additional measures taken. Per area and, therefore, also per company that you cooperative with the impact will be different. Measures named above can even differ based on the governmental officer, as every officer can can interpret rules in their own way.
2.00 – Economic implications
In the last letter published about the Coronavirus outbreak, I have mentioned the possible economic impact in China but also worldwide. As the national holiday has been extended until the 9th of February and some areas till the 1st of March, the forecast about economic damage have not become better. While publishing the last letter, the market was still not very aware of the economic risks involved with the virus outbreak and the necessary measures taken by the Chinese government. The automotive sector has published the announcement that they expect a hard hit in their supply chain and Foxconn, manufacturer of for example iPhones and Kindles, have announced that it will focus on producing medical masks as their normal production, for now, will not be able to resume again.
We expect that this week will be the turning point for SME companies worldwide who start to realize the real impact of this situation. We expect the following from happening.
2.01 – No delivery of products
Companies will not be able to produce or only produce a minimum output. Which means that a significant percentage of companies worldwide will not be able to receive products. Factories in China are just not able to start up operations on time, with minimum labour and supplies. Besides, the output of the factories will be not sufficient to supply the demand worldwide.
2.02 – No stock means no sales
As we mentioned in our first letter, companies that have business models with fast lead times will encounter situations in which they are just not able to sell. If their balance sheet doesn’t have any reserves this situation can result in not being able to pay bills. No stock means no sales. We expect big problems with Amazon selling companies and companies that are trading with credited purchasing (daily deal concepts). We also expect factories in Europe and other areas to not being able to produce because they are not able to receive materials and parts manufactured in China.
2.03 – No other option than China
Where China will not be able to produce a sufficient number of products, the whole world will not be. In almost all sectors in the world, manufacturing outside of China still involves a lot of Chinese supply of materials and parts. This applies to all countries worldwide from Asia, Africa, Europe till South-America.
2.04 – What can you do?
Make sure you are in close contact with your suppliers. Make sure you know what the government measures are. Last week many Chinese companies have just told their customers that they would open the 10th and that they would be the first customer they would handle when starting up operations again. However, this has been misleading and incorrect. Make sure that you ask about the governmental measures taken in their area. If you know the measures, you can make your estimations and judgements.
Ask your Chinese partners how they are handling the current situation. Make sure you are in conversation and support of them to start-up those operations. Which product or service can they deliver with the resources they have? What product or service suits their supply chain now the best? Which workers have returned? Which production line you start up with? All questions that give you insights about what is possible and what not. Based on this information you can support your Chinese counterpart to start-up operations and also be aware of what can be in it for you as a company.
We from CIL China try to manage all Chinese counterparts of our clients the best as possible. We are working closely with them to support the management and make sure we are prioritized. We expect that de coming period, Chinese companies will not be able to reach at least 50% productivity compared to before the Virus outbreak. Therefore, we still expect a hard hit to supply chains the coming period.
We admire the Chinese government for their ability to control the situation. We are looking forward to a positive outcome due to the energy that the government and the Chinese people put in face and tackle this crisis.