[Exclusive] Hyundai Motor's China Expat Returns Home, Factory Operations Delayed... Global Manufacturing Supply Chain Collapses

[Asia Economy Reporter Kim Hyewon] The aftermath of the novel coronavirus infection (Wuhan pneumonia) is collapsing the global manufacturing supply ecosystem. As the novel coronavirus situation rapidly spreads throughout the domestic industrial sector, concerns about a 'production cliff' are becoming a reality. This is due to a surge in companies unable to resume normal operations at local factories after the Chinese Lunar New Year (Chunje) holiday.

According to the industry on the 31st, Hyundai Motor Group postponed the resumption of production at all its factories in China, including the Beijing plant, to at least after February 10. It was also confirmed that the company issued instructions for all expatriates in China to withdraw, leaving only a minimal number of personnel, following the families of expatriates.

Several insiders familiar with the local situation said on the same day, "The restart date for Hyundai Motor's Beijing plant has been delayed to February 10 for now, but it could be postponed again," adding, "Next week, expatriates except those on duty shifts have been instructed to return to Korea and work from home until further notice."

Hyundai Motor Group had set up an emergency response comprehensive situation room and recommended repatriation with company support for expatriate families wishing to return, but this is the first time it has ordered the withdrawal of expatriates since the novel coronavirus outbreak.

The impact is also spreading to domestic factories, and from around next week when parts inventory runs out, normal production in Korea is expected to become impossible. Domestic factories have canceled overtime shifts at Ulsan and Jeonju plants due to disruptions in parts supply imported from China. An industry source said, "Starting with the cancellation of some factory overtime shifts this week, all Hyundai-Kia plants could halt operations next week due to shortages of various materials used in electronic components."

This situation is not limited to Hyundai Motor Group but is the same for other large corporations as well as small and medium-sized enterprises, raising concerns that the global manufacturing supply chain itself could collapse.

Among multinational companies, the US-based Apple is expected to be hit hard if the novel coronavirus situation prolongs. Apple has production bases in China and manufactures most iPhones there, but major assembly contractors Foxconn and Pegatron are located very close to the outbreak area, making normal operations unlikely for the time being. Dan Ives, an analyst at Wedbush Securities in the US, said, "Apple's supply chain could collapse." Foxconn, which has large parts factories in Wuhan and iPhone assembly lines in other regions, has suspended factory operations and postponed employee returns until mid-next month. This is expected to cause disruptions not only in iPhone production but also in the global IT industry's supply chain for products such as flat-screen TVs and laptops.

Wuhan is also home to many global automobile companies. GM, Fiat Chrysler, and Ford have restricted employee travel, and Nissan has withdrawn its employees from Wuhan. Tesla, the world's largest electric vehicle company that started factory operations at the end of last year, has stopped operations and warned of possible poor performance in the first quarter of this year. PSA, Renault, and Honda are also closely monitoring the situation and are unable to operate normally.

Larry Hu, Macquarie's senior China economist, described the novel coronavirus as a "black swan," expressing concern that "the spread of the novel coronavirus could deal a tremendous blow to the global economy." He explained, "China is more deeply involved in the global economic supply chain than it was during the 2003 global financial crisis, and if problems arise in China's supply chain, the global supply chain will inevitably be affected."