2020 is destined to be remembered as a turbulent period in the human history. The outbreak of COVID-19, which is declared by WHO as a global pandemic, is impacting the world’s social and economic environment profoundly. As the first country hit by the epidemic, China is taking aggressive measures slowing down the spread of the coronavirus.
China nowadays is responsible for 17% of the world’s economy and drives 30% of the world’s GDP growth, taking a much higher stake compared to during the SARS epidemic period in 2003. Since mid-February when the outbreak in China reached its peak, the Chinese government has already started making plans to restart the economy by a series of economic and financial policies.
First and foremost, to save the small businesses from running out of cash, China’s central bank has injected RMB 1.2 trillion ($174 billion) into the market and reduced the interest rate for commercial lenders to 2.5%. The State Council also ordered large state-owned banks to increase lending to small businesses by at least 30 percent in the first half of 2020. At the same time, the central government encouraged local governments to draft up support policies to help small businesses pay less, including phased tax cuts, postponed payments, deduction and waiver of social insurance fees, as well as discounts in utilities fees.
Under the waves of economic stimulus, businesses in China are racing to find silver linings in the looming presence of economic slowdown. Supermarkets, traditional food markets, restaurants, gyms, and those used to rely on physical space are adapting to new business models for online sales. Many restaurants recently received takeout orders that have accounted for 90% of the business. Hema (盒马), a fresh food retailer, has seen a surge of online orders during the epidemic and has recruited more than 1,500 employees from over 30 suspended catering companies. The logistics industry, although largely impacted by the travel ban, is still busy arranging daily deliveries to the local communities. Some health clubs and gyms are aiming at online marketing to enhance customer relationship by streaming teaching videos. Online education, internet medical treatment and online office solutions are also developing rapidly.
In the space of just a few weeks, business owners have, of necessity, begun to transform their businesses in a digital way. Some may struggle, and hopefully most will make it through. Take a moment to remember how JD.COM became one of the biggest online retailers in China. During SARS outbreak in 2003, Mr. Richard Liu, the founder of JD.COM, suffered RMB 8 million in less than a month. When the company had only 3 months’ of cashflow available to burn, he closed his brick-and-mortar shop and launched a retail shop online, which evolved to JD.COM today.
All of that said, there are also sound reasons to be concerned about how small companies can survive the COVID-19 outbreak when China’s economic landscape is much different from that during SARS. Just before the COVID-19 made its entry on the stage, the country’s economy was already slowing with multiple consumer sectors suffering weak demand, rising labor costs, growing debt and rapid aging. During the coronavirus outbreak, the closure of businesses has inevitably caused many companies to suffer huge sunk costs such as rent, salaries, inventories, etc. Even when the outbreak is over, the public needs time to overcome the fear of activities that require social interaction. Businesses have legitimate reasons to be uncertain about sustaining profitability.
Regardless, one thing is clear – the coronavirus is staying with us for a while. Businessmen may be restricted from traveling to close deals by shaking hands. But they are not restricted from looking for new business opportunities through innovation and change. China will continue to roll out policies to stimulate the economy along with the measures to contain the outbreak. It is advisable to study these policies carefully, as the government policy is usually a good compass pointing to the direction of the country’s next economic focus. Funds and incentives are available in the development of strategic sectors. When the outbreak is over, China will accelerate the recovery by rewarding those who stick around.
Written by Delilah Li, China Consultancy Team, CW CPA