China's coronavirus freeze threatens the global economy

In an industrial area west of Chicago O'Hare International Airport, more than 6,000 miles from China, Michael Smerling is steeling himself for a devastating blow from the coronavirus outbreak.

Smerling makes knapsacks, travel pouches and outdoor gear for companies like Bed Bath & Beyond, Nordstrom Rack and Amazon. For now, the warehouse of his company, LCI Brands, is packed with merchandise.

Perhaps not for much longer. His company's Chinese suppliers have been shut down as the authorities try to stop the outbreak, essentially freezing vast swaths of the world's second-largest economy, after that of the United States. Last week, Smerling laid off eight people, about a fifth of his full-time workforce.

"It was the hardest decision I've made in my career," Smerling said.

If the coronavirus plunges the world into recession, China will be the biggest reason. Economists caution that its shutdown threatens the economies of Japan, South Korea, Europe and even the United States. Huge corporations like Apple, Microsoft, AB InBev and Pfizer have already seen an impact.

Even those warnings understate China's reach. An economic disaster just four decades ago, China now touches the lives of billions of people around the world. China matters to Smerling, Chilean farmers, Thai tour guides, Indian automakers, Mongolian truck drivers and countless others who depend on its economic might.

When China stops, they feel it.

"An economy is an object in motion," said Rodney Jones, an economist specializing in China. "A lot of things work in connection: supply chains, shipping, transport, movement of goods. There is no one standing over it telling it which component goes where."

"The idea that we can stop an economy and restart it is crazy," he added.

China has become a voracious consumer of the world's rocks, oil, food and other raw materials. Before President Donald Trump launched a trade war against China, it bought more than one-quarter of America's soybeans. Australia's mining industry, which employs more than 200,000 people, depends on China.

In Mongolia, coal mining for China makes up nearly half its export revenue and provides jobs for people like Battogtokh Uurtsaikh, who is wondering what to do next.

Battogtokh drives 70-ton truckloads of coal from a huge mine in the Gobi Desert to the border with China. The schedule requires him to navigate a potholed, two-lane highway clogged with other coal trucks on one or two hours' sleep.

For Battogtokh, it is the only way to provide a better future for his children. China's demand has made the job one of the best paid in the country. In a good month, he can make as much as $1,600.

In January, Mongolia closed the border. Battogtokh's plan to pay back a truck loan this year is in jeopardy. The last of his money, he said, went to the bank as payment for two separate loans worth $7,300.

Battogtokh, who has a 7-year-old son and a 3-year-old daughter, needs another job. "Their future depends on what I am doing now," he said.

Some of his friends, desperate for work, still drive coal to the border in hopes of finding buyers.

"But they can't get paid by their Chinese bosses," Battogtokh said. "They don't even have money to buy food."

China's appetite goes beyond raw materials. It rivals the United States when it comes to shopping. People in China are the world's largest purchasers of automobiles, smartphones and luxury goods.

Life Together, a South Korean manufacturer, once earned 40% of its sales from China. A maker of lotions, facial masks and other beauty products, the company had been counting on an even bigger boost from JD.com, a big Chinese online retailer, where it was supposed to begin sales on a trial basis this year.

Song Woonseo, the founder of Life Together, and his team spent six months developing the right skin care products. Then the coronavirus hit.

"Then it felt like things were crumbling down, big time," Song said. The deal is now up in the air. "We are in limbo," he said.

With logistics snarled in China, Song said, his other China-bound products are sitting in storage.

"On top of that," he added, "we can't even produce things that we had to because we haven't been able to receive materials and parts from China to do so."

China's consumers make up a powerful force outside the country's borders, too. They spend more than $250 billion a year on travel, considerably more than Americans.

Now, the vast majority are staying home. In late January, China suspended tour groups and travel package sales.

"I have zero clients," said Saichon Chuenchoo, who has worked as a tour guide in Thailand for 25 years.

Saichon, who speaks Mandarin, specializes in leading big groups around Bangkok and central Thailand. His charges, wearing matching hats and following his waving flag, have become a welcome sight at tourist spots.

Now Bangkok's Huai Kwang Market and the Train Market in Ratchada, two popular Chinese tourist spots, are virtually empty, with more sellers at stalls than tourists. On some nights, some stall owners don't bother to show up.

Saichon has to be thrifty. He has a second job, but he and his wife are teaching their two daughters how to be careful, too.

Other tour guides aren't as fortunate, said Saichon, who is working with an industry association to secure financial support from the Thai government. Around 10,000 tour guides have lost their jobs since the virus first began to spread. Some Chinese tour operators who asked guides to pay for their own logistics in advance have absconded with the money, Saichon said, leaving them with as much as $3,000 or $4,000 in debt.

"It's hard enough with the coronavirus outbreak and now some are facing this," Saichon said.

China's growing wealth has made it an essential market for a range of businesses, big and small, that make specialized high-end products. That dependence on China has now become a liability.

Glasbau Hahn, a firm in Frankfurt, Germany, makes glass display cases for museums like The Metropolitan Museum of Art in New York.

Isabel Hahn, a member of the family that owns the company, said that payment for a project in the Chinese city of Zhengzhou had been delayed. Glasbau Hahn's vitrines have been installed, but other work at the museum has stopped. The firm won't get paid until the project is complete.

Glasbau Hahn also won't get paid for a project in Nanchang, where it expects to deliver vitrines to a museum on schedule, but the construction site is closed indefinitely.

Hahn said the company can absorb the financial hit, but she added, "We have to keep an eye on our liquidity."

Some places are still waiting for the full impact.

Chile counts China as its biggest trading partner, with copper its largest export. But the South American country has tried to diversify, and cherries have become important exports. During China's Lunar New Year, Chilean farmers ship large containers of cherries to China, catching a window when the United States is out of season.

"The agri-food sector has been up-to-date the most exposed one," said Rodrigo Yanez, vice minister for trade in Chile. Copper exports have already been hit by trade war between the United States and China and the lower commodity prices that resulted.

For all its growing purchasing power, China remains a force in manufacturing, the industry that propelled it to prosperity. Smerling, who owns the travel gear company LCI Brands, has long depended on China as a supplier, even though the trade war between the United States and China made it more expensive to buy from there. His company was hit by three rounds of tariffs last year.

Now Smerling can't even reach some of his suppliers. Information is sparse, he said, and he doesn't trust that everyone is being forthcoming.

"We don't know what is truth, what is propaganda and what is boldface lies," Smerling said. He believes at least one supplier is misleading him so that he will put down a deposit with the company. "Everyone," he said, "is desperate for money."

When he is able to gather information, the news is not good. Some workers have returned to their factories as the Chinese government tries to get the economy restarted, but they are under 14-day quarantines in their dormitories. Some factories say they will be online by March 15. For others, April looks more realistic, he said.

"All our planning has been turned upside down," Smerling said.

Smerling said he could see worrying signs for other small businesses across the country.

The virus, he said, "is going to affect every level of American society."