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Manufacturing industry is facing new challenges

Manufacturing industry is facing new challenges

  • Mar 23,2020.

Manufacturing industry is facing new challenges

--as the new coronavirus epidemic spreads globally.



At present, with the strong measures of the government such as the closure of the city of Wuhan and the delay of the resumption of work nationwide, as well as the joint efforts of front-line workers and people, the spread of the Covid-19  in China has slowed down.

However, the global trend of corona virus outbreaks is not optimistic, the world health organization (WHO) on February 28 new pneumonia from the previous "high" global risk level to the highest level of "very high".


From Europe to America, from Far-east to Middle east...With the worsening of the epidemic outside China, the global economic recovery is greatly hindered, the global manufacturing industry is facing new challenges!


The impact of the new corona virus outbreak on global manufacturing is already being felt

As the World Bank's world development index (WDI) shown, China has become the largest trading partner of more than 120 countries by 2018. According to the World Comprehensive Trade Solutions database jointly released by the World Bank and the United Nations Conference on Trade And Development (UNCTAD), nearly 200 economies in the world import goods from China, of which intermediate goods account for an average of 21.7 percent. China is now the hub of a network of global supply chains, and Chinese manufacturing is crucial to many global value chains, particularly those related to precision instruments, machinery, automobiles and communications equipment. Any major disruption to Chinese supply in these areas would have a big impact on producers in the rest of the world. The spread of the new coronavirus outbreak in early February has had a huge impact on global manufacturing.



UNCTAD's latest report shows that, just is a disruption of China supply chains,  the largest economy in the affected may be the European Union (machinery, automobile and chemical products), the United States (machinery, automobile and precision instruments), Japan (machinery and automobile), Korea (machinery and communications equipment), Taiwan, China (communication equipment and office equipment) and Vietnam (telecommunications equipment).

Take the electronics and automotive industries

  • China imports semiconductors and electronic components from South Korea, Taiwan and Japan, and then gathers in our electronic manufacturing service factories to supply final products to the world. About 65% of the world's smartphones and 45% of its PCS are made in China, and the outbreak has disrupted entire manufacturing supply chains. A survey by IPC, the electronic equipment guild, found that 65% of the 150 electronics manufacturers and suppliers surveyed reported delays in both production and delivery due to the new outbreak. For example, the global supply of Apple's iPhone is temporarily constrained, Dell has been badly affected by its just-in-time production model, and so on.

  • Wuhan, the outbreak of the epidemic and the worst-hit areas in China, is home of five major vehicle manufacturers including Dongfeng Passenger Car, Dongfeng Honda, DPCA, Dongfeng Renault and Saic-GM, attracted a large number of parts enterprises agglomeration, covering chassis, transmission, car body, interior, glass, and other major parts. The closure of Wuhan city form a huge impact on downstream vehicle production. Hyundai motor co., Ssangyong motor co., LTD., suspended auto production in South Korea after factory shutdown in China disrupted parts supplies. Nissan Motor Co.'s vehicle factory in Kyushu temporarily suspended production, and so on.



The outbreak is developing rapidly in our important trading partners, and the impact on China's manufacturing sector cannot be ignored

The export decline of important trading partners will directly impact the upper, middle and down streams of the supply end, China's manufacturing industry is facing severe challenges!


Currently, as China's largest trading partner country, the United States is experiencing a new epidemic and a flu epidemic, and the risk pressure of the epidemic continues to rise. South Korea, China's second largest trading partner, has a lack of public sense of urgency due to the continuing political struggle, shortage of protective products such as masks and urgent medical resources, and the outbreak is out of control. In Japan, China's third largest trading partner, the epidemic situation has changed from import type to domestic situation, and some areas have small scale cluster infection, which is in the "transitional period". China's fifth largest trading partner, Germany, affected by the outbreak in Italy, Germany has become the third worst affected country in Europe except Italy and France...


Due to China's high dependence on Japan, the Republic of Korea, the United States, Italy, Germany and other countries in electromechanical, chemical, optical instruments, transportation equipment and rubber plastics, China is more vulnerable to the impact of epidemic escalation. The shutdown of foreign enterprises, the suspension of logistics and the reduction of exports will directly impact the supply end of raw materials in the upstream and the finished products in the middle and downstream. Some materials may rise in price. At the same time, the supply and price changes of materials indirectly impact the production and sales of some enterprises in the manufacturing industry chain.


Japan and South Korea dominate the supply of semiconductor raw materials and equipment, after the outbreak, China, as an important purchasing country, will be directly affected. From the perspective of the industrial chain, semiconductors involve the purchase of raw materials and equipment, circuit design, chip manufacturing, seal test and inspection. As an important link in the industrial chain, Japan and South Korea dominate the supply of raw materials and equipment. Japan is a major supplier of silicon wafers, photoresist and other raw materials, with a global market share of more than 50%. South Korea is an important supplier of global memory chips (including DRAM, NAND flash memory, etc.), CIS image sensors and other core components, and its global market share of LCD panels is about 30%, and its flexible OLED panels are up to 90%. The worsening of the epidemic in Japan and South Korea will cause global shortage of semiconductor raw materials and core components, high up manufacturing costs, which will impact the global semiconductor industry chain. As China is an important purchaser of semiconductor materials and equipment in the world, it will be directly affected.



The consumer electronics industry as a semiconductor downstream industry will be indirectly affected. Although in recent years, our country has developed rapidly in the field of semiconductor, but due to the technology gap, the key materials, equipment and parts  in the short term still can not replace. The deterioration of the outbreak in Japan and South Korea will lead to  the enterprises increased production costs, prolonged production period and delayed delivery, which will have an indirect impact on the downstream consumer electronics and other industries. According to the latest data from IDC, in the first quarter of 2020, the outbreak  in China will cause a 16.0% drop in Smartwatch shipments, Laptops fell 12.3%, Smart speakers fell 12.1%, Smartphones fell 10.4%, Video game consoles fell 10.1%, Television fell 4.5%.




Major auto industry countries are hit by the epidemic, the auto industry chain is damaged,the outward migration of China's automotive supply chain is accelerating. Due to its high technology content and long industrial chain, the automobile industry is a typical capital and technology intensive industry. It has obvious globalization features, has big influence to the economic. At present, the epidemic has hit all the world's major auto industries. According to World's Top Exports, the combined Exports of passenger vehicles and auto parts from China, South Korea, Italy, Japan and France reached $188 billion and $121.2 billion respectively in 2018, accounting for 24.3% and 29.4% of the global total respectively. With the outbreak fermenting overseas, it will have an impact on China's automobile and auto parts import, and the transmission effect will cause incalculable impact on China's or even the global automobile supply chain. Particularly alarming is the risk of accelerating supply chain migration and industry reshuffle as the outbreak continues to ferment. For example, Japanese auto parts company Weifu Technology has announced that it will transfer some of its production capacity from its factory in Wuhan to its plant in the Philippines. The outbreak caused Mercedes to stop production, and Beijing Benz Automotive Co.,Ltd suffered economic losses of up to 400 million yuan per day.




The new coronavirus outbreak, this health crisis caused a huge impact on the global manufacturing supply, commodity demand and so on. China, South Korea, Japan and Germany play a crucial role in the global supply chain. With the escalation of the global epidemic risk, the vulnerability of the long and complex global supply chain is increasingly prominent, supply chain diversification seems to have become an irreversible trend.


"Supply chain" will be a key word in Chinese manufacturing for a long time. A healthy supply chain will become the top priority of domestic manufacturing industry development. One hand, take advantage of industry supporting, accelerate the globalization strategy layout, through investment of overseas factories, looking for strategic partners, gradually build the organizers and managers in the whole supply chain, and make sure the integrity of our manufacturing industry chain, improve the security of the supply chain. On the other hand, while actively integrating into the international industrial supply chain, we should vigorously cultivate a small industrial cycle dominated by domestic enterprises, and continuously optimize the quality and efficiency of the development of manufacturing industry. Third, we will introduce corresponding support policies to accelerate domestic substitution, so as to create certain domestic substitution space for the related industries in core technologies and new materials in our manufacturing sector...


From:机工情报 ,作者宁静


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