Tech Cynic: When China sneezes, the world catches a cold

Coronavirus havoc both reveals and conceals deeper issues in IT markets and supply chains

The spread of COVID-19 has been, and continues to be, a tragedy for those infected and their loved ones. With the numbers out of China being unreliable at best, nobody yet knows the full potential of the virus to spread and kill. Accurate statistics aren't likely to be known until far into the future, once the dust has settled.

The effect of strict virus protection and prevention measures on Chinese manufacturing capacity is also an unknown factor at this stage. Clearly it has been significant, with fewer workers returning to factories after Chinese New Year and also fewer rural-migrant seasonal workers, who in many cases have taken the option of staying away from large population centres until it all blows over. Many factories have been closed, including some that could potentially have opened earlier but were forbidden to do so until flagship names such as Foxconn had their acts back together. Appearance matters in the PRC.

This disruption has had knock-on effects on the production of, well, pretty much everything. It's hard to overstate the essential nature of China in the manufacture of items that the IT industry - in fact almost every industry - takes for granted. Yes, Apple's phone production is being disrupted but so are car assembly lines in Europe, and countless other industries. Whether it's the dashboard display controller in your new SUV or an O-ring seal in your coffee machine, the hard drive in your laptop or the metric tonnage of plastic-electronic tat your kids receive for birthdays and Christmas, chances are at least part of it was made in China. A single missing component can halt an entire production line.

The reasons for this dependency on China are simple: for the past twenty years at least, there's been a race to the bottom in terms of manufacturing costs, and until recently nowhere has been cheaper than China. The combination of cheap labour, limited employee rights, a relaxed attitude to other people's intellectual property, subsidised shipping and the... let's call it the cohesive drive of the largest communist country on the planet, all made for an unbeatable combination, in price if not always in quality.

Manufacturing has been outsourced there, components and assemblies have been sourced from there, new businesses around the world have been built up around the opportunities offered by cheap Chinese manufacturing. Until recently - and despite the warnings of a handful of economists unconvinced by the wisdom and robustness of such a model - it all appeared to work reasonably well. Now that model is showing its weaknesses.

"Because of the coronavirus" has become the tech sector's equivalent to "the dog ate my homework." Of course the major IT corporations would have hit their sales targets if it hadn't been for that pesky virus. Of course they would have...

The truth is more complex. China's economy has been flashing warning signs for months if not years. Export demand for its electronics components plummeted last year, long before COVID-19 was even a thing. Countries and companies that previously couldn't get enough of Chinese ICs and related parts have been dialling back the scale of their orders because the demand for their own end products has been falling.

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