(Yicai Global) April 7 -- Chinese exporters have moved from a worrying shortage of labor to a disquieting lack of orders in less than two months as the novel coronavirus fans out across the planet.

"At the end of January, customers, including ourselves, were worried about capacity and whether goods could be delivered on time," Ye Mao, owner of a hat factory in Taizhou, Zhejiang province, told YiMagazine on March 22.* "The factory has fully resumed work, but because of the slump in orders we have to actively control the capacity at about 70 percent."

With most of Ye's clients based in Europe, where the global pandemic is the most severe, he is prepared to pay salaries for two to three months even without orders.

Orders from overseas are slumping as the virus paralyzes economies worldwide. China's exports dropped 17.3 percent in the first two months of this year from the same period a year earlier, customs data published on March 7 showed. Shuttered factories over the Chinese New Year holiday and the coronavirus epidemic were largely behind the decline. 

It is a positive sign if a factory can restore half of its normal capacity, but a sharp decline in external consumer demand is more worrying, Wang Zhenyong, the operator of a fabric factory, told YiMagazine.

The virus outbreak will impact about CNY6 trillion (USD850 billion) to CNY8 trillion worth of output value in China's clothing industry, Wang said. As a result, the annual sales capacity of the country's entire apparel supply chain is expected to fall by 15 percent to 20 percent.

The United States and Europe are the two largest export markets for Hong Kong-based cotton clothing maker Esquel Group, making up 63 percent of its annual business volume. Large-scale store closures in those markets since last month are bound to severely hit clothing makers like Esquel. Since mid-March, Esquel has received notices from some clients to stop production of existing orders.

"Some of our key customers in Europe and the US have cancelled orders, while others have stopped all orders being placed on the production line," said Ma Weiping, general manager of the group's textile unit in Guangdong province.

China was the first country to face the peak of the epidemic and there was widespread concern that production and shipments of made-in-China goods would be delayed if the outbreak was not effectively contained, interrupting global supply chains, with nearly 30 percent of the retail market impacted in collateral damage.

China is the world's manufacturing superpower, accounting for 28.4 percent of the global market in 2018, well ahead of the US, which ranked second with 16.6 percent, according to the United Nations Statistics Division.

Domestic demand in March did not effectively recover, while the outbreak in Europe and the US worsened. Many brands decided to suspend production or cancel orders at scale, and even abandoned sales on a quarterly basis due to the sluggish outlook in the global retail sector over the coming months. If brands turn their backs on the spring-summer market this year, producers will have no choice but to accept the situation.

"The retail sector is the first to suffer when domestic production demand is curtailed," Xue Donhui, general manager of Beijing Career International's flexible staffing business, told YiMagazine. "Once the retail sector is affected, there will soon be problems in manufacturing. In the context of global economic integration, no role is immune to shock."

According to a YiMagazine survey, a large number of factory orders are being cancelled after completion of production, resulting in difficulties in retrieving accounts receivables, with the goods becoming the plant's own inventory.

"I don't know how long the factory can survive," said the owner of a plant that has just had more than 400,000 orders cancelled. "I never thought that one day we would have to sell our export goods in the home market."

Editors: Liao Shumin, Chen Juan, Peter Thomas

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