Delay in Yencheng Factory Operation Due to Wuhan Fallout
Beijing Hyundai Also Likely to Postpone Until Around the 10th
Companion Parts Suppliers Unavoidably Affected
Celltrion, Planning to Build Factory in Wuhan,
On High Alert Monitoring the Situation Closely
[Asia Economy Reporters Kim Hyewon, Choi Daeyeol, Lee Jinkyu] Kia Motors has postponed the restart date of its Yancheng plant in Jiangsu Province, China, from the 3rd to the 10th of next month. This is a second, somewhat forced delay following the initial unavoidable adjustment due to the extension of the Chinese Lunar New Year (Chunje, 春節) holiday to February 2nd amid the outbreak of the novel coronavirus (Wuhan pneumonia). Beijing Hyundai, Hyundai Motor's joint venture in China, initially planned to resume production at its Beijing plant on the 3rd but is currently negotiating with Chinese counterparts to delay it to around the 10th due to concerns over parts supply disruptions.
Several insiders familiar with the local Chinese situation stated on the 29th, "Among Korean companies operating in China, the consensus is that even after the Lunar New Year holiday ends on February 2nd, it will be practically difficult to restart production plants in regions affected by the novel coronavirus." Typically, automakers and their parts suppliers in China halt factory operations during the Lunar New Year holiday, but this time, due to the coronavirus outbreak, they are unable to set a clear restart date after the holiday.
Kia's Yancheng plant, relatively close to Wuhan city?the epicenter of the outbreak?has voluntarily postponed its restart date first. Beijing Hyundai, located farther from Wuhan, plans to decide the restart date within a day or two after consultations with Chinese partners, but the originally planned February 3rd restart seems unlikely.
The worst-case scenario anticipated by the industry is that normal operations may still be difficult even by February 10th. Beijing Hyundai sources parts from suppliers in Hubei Province, where Wuhan is located, so even if production resumes, logistical disruptions could make factory operations impossible. One industry insider said, "Usually, companies stockpile 2-3 days' worth of inventory before the Lunar New Year holiday, but even if production restarts on February 3rd or 10th, parts supply might run out within a few days, forcing another shutdown."
Another issue is that Hyundai-Kia and their Chinese joint venture partners face direct hits to their performance the longer the situation drags on. A parts supplier CEO lamented, "Parts suppliers are directly affected in sales if they don't operate daily, but they still have to pay employees, including Chinese staff, on time, which is a nightmare. Especially since even the main contractors don't know when their factories will resume, suppliers have no choice but to wait indefinitely." POSCO's steel sheet processing center in Wuhan also halted operations during the Lunar New Year holiday and is struggling to set a restart date.
Beyond these companies, in China, factory operations may be delayed repeatedly depending on decisions by local governments. Samsung Electronics' home appliance plant and Samsung Display's LCD production line in Suzhou are prime examples. Suzhou was the first local government in China to issue a directive to multinational companies operating locally to suspend factory operations until around February 8th following the coronavirus outbreak. An industry official said, "Other local governments may also issue such unilateral orders depending on the situation of their citizens. In such cases, the scale of production disruptions could increase."
The novel coronavirus outbreak is also impacting South Korea's bio and gaming industries. Celltrion, which planned to hold a plant completion ceremony in Wuhan in April, is closely monitoring the local situation. Although construction has not yet started and they have not deployed large-scale personnel or established a local office, prolonged issues could disrupt the construction schedule. Earlier, Celltrion selected Wuhan, a hub for global pharmaceutical and bio companies, as its first overseas plant location and signed a business agreement with Hubei Province and Wuhan officials on the 20th. A Celltrion representative said, "There is still time before the completion ceremony, so we are carefully watching the local situation and will decide on the construction schedule accordingly."
There are also forecasts that South Korean games will face difficulties entering the Chinese market. Currently, Korean games have been blocked from entering China for three years due to the refusal to issue distribution licenses (panho, 版號). Professor Wi Jeonghyun of Chung-Ang University, who serves as president of the Korea Game Society, said, "If the situation is somewhat resolved in the first half of the year, the panho issue might be readdressed in the second half, but otherwise, it will have to be postponed beyond this year." Smilegate postponed the 'Crossfire' Pro League finals, originally scheduled to be held in Kunming at the end of next month, following the decision of its publisher Tencent.
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