A worker makes footwear inside a plant in Dongguan, South China's Guangdong Province. File photo: VCG

Thousands of factories in Dongguan, South China's Guangdong Province that make products for big-name brands including Burberry, Prada, Fossil, Disney, and Hasbro are seeing overseas orders in freefall amid the global pandemic, forcing some to reduce capacity, lay off workers or even go under. 

The series of closures in Dongguan, home to thousands of Chinese original equipment manufacturer (OEM) factories, is another blow that COVID-19 has inflicted on global supply chains. 

It's not just a passing phase. Even if the pandemic fades, well-known foreign retailers could hit snags in rebuilding supply chains in China on the heels of a mass capacity cut, industry insiders pointed out. 

He Jiaming, chairman of Dongguan Jieshimei Shoes Materials Co, told the Global Times on Thursday that the vast majority of the company's export orders dried up a week ago as several foreign clients, mainly in the Europe and US, cancelled those orders due to the global pandemic.

He's facilities make counter and toe puffs for such international luxury brands as Burberry and Prada. 

A manager of a Dongguan-based furniture company surnamed Zhu told the Global Times that he received several calls from foreign clients to cancel 70,000 yuan ($9,865) in orders in recent days. 

"But we're close to delivery after working day and night. This is a tremendous loss because clients only paid 30 percent deposits in advance," Zhu said.

About 90 percent of the company's clients are from the US, including "some household names," said Zhu. He declined to say more. Zhu has asked some of his workers to take unpaid holidays. He is now planning to rent out some plants, as most of the machines in his factories are idle.

Zhu is not alone. A freeze in export demand has heaped pressure on factories in Dongguan that produce the bulk of OEM orders for foreign brands. 

Lin Butian, chairman of Dongguan Electric Motor Co, which supplies motors to domestic clients who export to North America and Europe, told the Global Times that his daily losses may reach 3 million yuan due to evaporating orders. 

Some companies told the Global Times that they had not received any export orders after the Spring Festival holidays, even though their production was back to normal.

On March 21, Dongguan-based manufacturer Good Will Watch case reportedly decided to close its factory for three months, after its biggest client, Fossil Group, cancelled all orders.

On March 18, another toy manufacturer - Fan Fan Toy - based in Dongguan, which employs 1,200 workers, closed due to liquidity problems as export orders were suddenly cancelled. Fan Fan Toy is a Hong Kong-invested enterprise and its foreign clients include Disney, McDonald's, Hasbro, Walmart and Tesco. 

Luxury brands including Coach, Dior, Loewe, Boss and Michael Kors also commission OEM orders to Dongguan factories, the Global Times learned from industry insiders. 

"Those global brands have felt the pinch of the epidemic since it impairs consumers' purchasing power and willingness," He said. 

He is also the head of the Dongguan Shoe Chamber of Commerce. To generate income, He said he is teaming up with other association members and they have built up a facility to produce face masks. The facility can churn out around 300,000 masks per day and it has orders through the end of March.

Wang Jun, chief economist at Zhongyuan Bank Co, told the Global Times that as most countries enforce stringent lockdowns, a worldwide production standstill could inflict millions of yuan in losses to Dongguan manufacturers, who are usually placed on the middle of global supply chains.

Wang predicted that more of them, which have faced a capital crunch due to at least one month of production suspension, won't be able to stand it much longer and will go bankrupt. He suggested export-oriented firms to turn inwards and explore the domestic market.

Industry insiders said that many transnational companies have relied much on China's mature and complete supply chain for a long time.

China's Ministry of Commerce said on Thursday that China will speed up the landing of more targeted support policies for enterprises, including measures involving financial, fiscal and export credit insurance. 


Newspaper headline: Dongguan factories reel from cancellations