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Author: Oliver Murphy & Susie Gao
The outbreak of coronavirus in China and the subsequent lockdown has had a significant impact on the tourism, retail and aviation industry.
Take Xibei, for example. With over 367 eateries in China, the restaurant has claimed that even with the provision of bank loans, it doesn’t have enough cash to make it past three months. But the situation is even worse for small and medium enterprises. With the Chinese stock market having plunged to nearly 8%, manufacturing output having shrunk by 13.5%, there have been significant difficulties in continuing international trade.
Although China has appeared to reduce the spread of coronavirus - with less than 2,000 active cases - the virus continues to spread around the globe, which will have a marked impact on its imports and exports. Data shows that China’s import and export market forms a major part of the economy, with it reaching a total value of 31.54 trillion yuan and accounting for 31.8% of its economy.
China has suffered even deeper economic damage from the coronavirus pandemic than predicted, with figures released by the National Bureau of Statistics (NBS) showing factory production inside the country dropped at the fastest pace seen in three decades.
Financial analysts have said the economic impact of the pandemic may have cut China’s growth in half during the first quarter.
Industrial output fell 13.5% in January-February, compared with 2019, which ING economist Iris Pang told AFP was the first contraction since January 1990, when industrial production shrank 21.1%.
According to Zhang Yi, chief economist at Zhonghai Shengrong Capital Management: “Judging by the data, the shock to China’s economic activity from the coronavirus epidemic is greater than the global financial crisis.”
At present, China is planning a 50 trillion yuan (US$7 trillion) stimulus package to try to save the economy after the coronavirus lockdown by driving investment and the development of infrastructure including 5G, Artificial Intelligence and the internet. Short term, this investment will be effective in stimulating economic growth - infrastructure investment has always been one of the main driving forces behind China’s economy.
Other measures will include a fiscal and monetary intervention to further ease the tax burden, increase government spending, and lower borrowing costs, as well as special policies to protect jobs.
However, China will refrain from flooding the market with excessive liquidity, in order to avoid pushing consumer prices even higher.
On Monday, the People's Bank of China injected 100 billion yuan ($14.3 billion) into the financial system by offering cheap loans to banks. On Friday, the central bank announced it would cut the amount of cash banks must hold as reserves. The move would also pump 550 billion yuan ($78.6 billion) into the banking system.
Currently, China is the second largest consumer market in the world but data shows that the outbreak of coronavirus has had a significant impact. Between January and February, total retail sales of consumer goods in China fell by 20% compared with 2019. Of these, the catering industry fell by 43%.
However, the issue is: how to encourage consumers to consume? China has responded with a solution by issuing so called “consumption vouchers”. With more than 300 million yuan spent on the vouchers, citizens can use them for eating, shopping, sports and other activities. Since first being introduced, more than 20 provinces and cities have issued the vouchers.
This includes Wuhan, the severely impacted city by COVID-19. From April 19 to July 31, in Wuhan, the government will release 500 million yuan of "Wuhan consumption vouchers" ranging from 10yuan to 80yuan to all residents in the city. It includes food and beverage coupons, shopping mall coupons, supermarket (convenience store) coupons, sports and tourism coupons.
Yet, people might ask: why not send cash directly instead of issuing vouchers? There won’t be many people who will actually spend it if the government, for example, provides 1000yuan to citizens. Most people will choose to save it, which leads to difficulty in achieving the aim of pulling the economy back to strength.
China’s start-ups have already faced a rocky start as a result of last year’s economy slowdown which saw investors being scared off.
This year, venture capital investment in start-ups in Greater China - has plummeted more than 65% compared to the same time last year, according to PitchBook.
According to a report from Beijing-based start-up tracker IT Juzi, Venture capital (VC) investment in the country’s tech sector shrunk 30% in the first quarter of the year, with VCs funnelling $16.8 billion into tech enterprises during the first three months, down from $24 billion in the same period last year. The total number of deals contracted too, falling 45% to 634.
Seeking funding is proving a difficult task as most equity funding is private. Some start-ups have accepted less money and lower valuations in financing negotiations to get through the difficult times ahead.
In February 2020, there were 145 investment cases in the VC/PE market, down 69% compared with the same time last year.
"Tiantianpa candy" is an offline handmade candy manufacturer and retailer. It was established less than two years ago, but the epidemic wiped out its offline revenue, resulting in a revenue loss of about 900k yuan. The founder wanted to alleviate the pressure of cash flow through financing, was approached by the investment department of large companies, in the name of investment contact, but tried to purchase at a discount of 60% of the original price.
Companies are worried about long-term survival - how to adjust their products to adapt to the post-pandemic world, which may lead to different narrative styles, and thus change the interest of investors.
Meanwhile, some institutions have suspended investment until the epidemic is under control. Markets are volatile, so investors should be patient especially during this time.
However, there are some industries that benefit from this epidemic. The new media market is booming with sites like TikTok, Kuai Shou, and other short/live video platforms performing well. And also, online education, e-commerce platforms, medical and biology industries are gaining lots of traction in the market.
Disclaimer
To the best of our knowledge, the information we have provided is correct at the time of publishing.
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