Covid Keeps Workers in Factories, Distorting China Spending
A worker handles spools of yarn on a production line at a factory in China. (Photographer: Qilai Shen/Bloomberg) 

Covid Keeps Workers in Factories, Distorting China Spending

For the first time in her life, Zhang Sufang won’t be going home for the Lunar New Year. Instead the 37-year-old production supervisor is exchanging gifts with her parents and 16-year-old son by post as fears of reigniting the pandemic in China disrupt the nation’s biggest holiday.

“When I received boxes from home, I burst into tears,” said Zhang, who works at Fujian Strait Textile Technology Co., a yarn-maker in eastern China.

China may have got its control of Covid down to a handful of new cases per day, but quarantines and travel curbs to keep it that way have forced millions of factory workers to give up the idea of a traditional family gathering. That will distort what is traditionally an annual catalyst for spending, a setback for a government trying to boost the role of consumption in the economy.

Covid Keeps Workers in Factories, Distorting China Spending

With local governments encouraging workers not to travel following a resurgence of Covid cases in the north, transport use is already down by 76% on pre-pandemic levels and many workers have decided to stay on the factory floor and earn some extra money instead. This year, officials expect around 1.2 billion trips to be made by road, rail, air and ship in the world’s largest annual migration, a drop of more than 20% from last year.

Covid Keeps Workers in Factories, Distorting China Spending

That will slow the government’s drive to shift the economy from factory exports to domestic spending and to transfer wealth from rich coastal provinces to poorer western regions. This year, the production lines will keep rolling to meet soaring overseas demand and it’s the hotels and restaurants in eastern cities like Shanghai that are booked out.

Zhang’s company, Strait Textile, will close for just three days over the holiday compared with 10 normally. The same is true at factories across China’s industrial cities. Big carmakers including Geely Automobile Holdings Ltd. have encouraged workers not to travel during the break and have offered incentives such as extra holidays and free canteen meals.

Covid Keeps Workers in Factories, Distorting China Spending

Many Difficulties

China’s unbalanced recovery was highlighted by official data on Wednesday, which showed the first deflation in core consumer prices in more than a decade --indicating weak demand for services like travel -- while industrial prices increased. The trend is likely to worsen in the short term as the gain from production lines is accompanied by a reduction in the 1 trillion yuan ($155 billion) in spending that happens around the Lunar New Year.

“It should be positive for production, but negative for consumption,” said Larry Hu, chief China economist at Macquarie Group.

Overall growth is likely to slow as people spend less on transport, meals out and presents. China’s economic output is likely to shrink 0.5% in the first quarter of 2021 from the previous quarter, with services slowing the most, estimates Hao Zhou, senior emerging markets economist at Commerzbank AG.

The holiday disruptions will extend to commodity and energy markets. Domestic oil prices could fall due to lower transport use, but demand for copper and aluminum is potentially strong as industrial plants continue working, He Jinbi, chairman of Maike Metals International Ltd., one of the country’s top copper traders, said earlier this month.

Zhang and other workers at Strait Textile will receive wages 20% higher than the normal rate, paid for partly by the local government. That will help the company meet a jump in orders from overseas. “Usually we record losses during the month of the Chinese New Year, but this year we can make a profit,” said Vice President Liu Yuandong.

Covid Keeps Workers in Factories, Distorting China Spending

Other factory workers will do even better. Simon Zhi, deputy manager at BSG Auto Glass Co. in the eastern Chinese province of Jiangsu, says his company is doubling wages for its 220 workers over the holiday. The pandemic and rocketing shipping costs are pushing clients to get supplies earlier than usual, he said. “Our orders are very robust.”

City officials have offered workers free sightseeing passes for local tourist spots to help make up for not going home, said Zhi.

Not everyone will enjoy a financial windfall. Freelance cargo driver Wei Song comes from Tonghua, a city in the northeastern province Jilin that imposed one of China’s strictest coronavirus lockdowns last month. He said testing requirements will force him to remain in Beijing even though he hasn’t been assigned work and won’t get any extra pay. “All the costs are my own,” he said.

Shanghai Night

Among the beneficiaries of this year’s hiatus are hotels in cities that normally would see a mass exodus at this time of year. Four of China’s five most popular hotels over the coming Lunar New Year are based in Shanghai, according to travel agency Group.

“We not only have our dinner tables fully booked for New Year’s Eve, but our business before the holiday has grown more than 50%,” said Chen Siwei, who manages a seafood restaurant in Shanghai.

Workers told Bloomberg News that concern about quarantine restrictions and fast-changing virus rules were their main reasons for staying at their workplaces. Traveling across the country can require multiple Covid tests and two weeks of isolation in a hotel at both the destination and upon return.

“I do want to see my kids at home, but given all the quarantine, the tests, and the uncertainties it’s not worth it,” said Zhang Jiayun, a 32-year-old who works at a property management firm in Beijing.

Covid Keeps Workers in Factories, Distorting China Spending

A further tilt toward industry won’t please Beijing, which has tried to rein-in over-zealous virus control efforts by local governments. The central government issued a list of “six nos,” including “no arbitrary restriction of return-home travel,” and “no compulsory testing of ordinary workers from low-risk areas.”

While it’s hard to determine the long-term effects of the pandemic on spending habits and consumer behavior, the immediate hit to government policies is likely to be temporary. “In the short term you are definitely going to see the economy going to become more imbalanced,” said Macquarie’s Hu. “But if you think about the whole year, the trend is that if people can get out and consume they are going to consume. They are just interrupted by the travel curbs.”

National Loyalty

For some workers, the fear of upsetting the nation’s hard-won efforts to control the virus outweigh the desire to reunite with families that many only see once or twice a year. “We don’t want to spoil the epidemic control just for personal interests,” said Strait Textile’s Zhang. “We don’t want to cause trouble.”

So instead of people traveling across the nation, it’s gifts. Cainiao, the logistics arm of e-commerce giant Alibaba Group Holding Ltd., said package volumes for traditional new year gifts such as home appliances and snacks are up 50% from last year. Cities with the most migrant workers, such as Guangzhou, saw the highest number of packages.

Luo Jie, a salesperson at a refrigeration equipment factory in the southern city of Shenzhen, sent fruit, nuts and cash to her parents whom she won’t see this year, but expects to spend less than normal overall. “Old people begrudge every penny, they don’t buy clothing for themselves,” she said. “But it’s hard to fit clothes and shoes online, so I can only buy them food.”

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