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Covid-19 in China: Gloom for many, boom for some

My phone buzzes. Lunch is finally here. I go down to a collection point in my estate where all deliveries are deposited – I make about five such trips each day for various items. These days, the only people allowed in are residents and deliverymen. Strictly no visitors.


I never get to see the delivery guy. But scrawled hastily on a card stapled to my lunch container are his name and body temperature. Similar details for the chef are there too.


I am somewhat put at ease by such measures, along with washing my hands about 30 times a day. During a routine visit to the mall, digital thermometers take my temperature on close to 20 occasions across three hours.


On my Uber ride there, a self-installed flimsy plastic sheet separates my driver and me. It is a common sight in Shanghai, where people have more or less adapted to life with Covid-19 – about two months since Wuhan’s lockdown on Jan 23, 2020. After all, research shows it takes about 21 days to form a habit, and the Shanghainese residents are warming up to this 宅 (“indoor-sy”) lifestyle.

Not business as usual


The same can’t be said for many companies here. Factories remain shut, shops closed, public transport disrupted and workers trapped in their hometowns, with logistics heavily affected. Only two-thirds of 300 million migrant workers in China have returned to their jobs as of end-February, estimates the China transport ministry, due to mandatory 14-day quarantines and reduced public transportation.


Here’s an example close to IJK. One of our portfolio companies, which sells machinery to an automobile plant, flew in an engineer to Beijing upon a client’s emergency request. But he has to be quarantined at a hotel there for two weeks first, and another two weeks more before he enters the Shanghai office. You can see why we expect revenue for this company to be halved this year. We also anticipate our automobile clients to postpone investments on machinery, line building and project upgrading, to minimise losses.


There are sectors even worse hit. During the Sars epidemic in 2003, transportation and delivery, restaurants and hotels, and finance were the three most affected industries in China, according to the National Bureau of Statistics. Today, these industries are unsurprisingly the most directly hit victims of Covid-19.


Till now, a whopping 75 per cent of restaurants remain closed. They stand to lose at least US$190 billion this year, based on a report by the China Hotel Organisation. The chief executive officer of Xibei, a chain restaurant with more than 400 stores, said in early February that it is taking loans to pay its 20,000 employees.


Bright spots in the darkness


The Chinese characters 危机 may mean crisis, but 机 also means opportunity. The founder of e-commerce giant JD.com, Richard Liu, said it was Sars that set him on the journey towards online retailing. Back in 2003, he had 12 brick-and-mortar shops, but switched his focus after the outbreak. In 2004, he started JD.com, and today it is a Fortune 500 company worth tens of billions of dollars.


This trend of pivoting online continues during the current pandemic. Xiao Long Kan, one of the largest chains of hotpot restaurants in China, has seen a fivefold growth in online orders. Food delivery giants such as Meituan, Hema and Eleme have seen up to a 300 per cent increase in sales.


New users from the older generation are also streaming in, where previously they were problem markets for these companies. Boom amid the gloom.


On IJK’s end, we have been talking to entrepreneurs about new opportunities. Web-based resources, such as online personal training, teleworking software and online education are seeing some degree of success. For example, US-based video-conferencing service Zoom has seen its stock price skyrocket while the entire index tanked. Online education companies in China, such as GSX Techedu, have also shown resilience in their value and are set to gain traction among high schools.


But even amid flashes of hope, the shadow of uncertainty looms large. We are discussing plans with our portfolio companies to potentially cut annual bonuses for the year due to decreased sales. During this downtime, we are taking the chance to train staff and record online courses. Our team continues to work from home, so that everyone can stay safe with their families. It can be a time of despair (and cabin fever), so the team has regular video calls to keep spirits and motivation levels up.


A mix of mutual encouragement, belt tightening and of course, clean hands, will surely see us through this difficult period. I’m confident this is just a pause in China’s success story and know that people will still come back after the pandemic and the economics get back on track.


It may take longer than expected this time, but the demand and supply from the world’s biggest population and second-biggest economy will still be there.

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