By Martha Payne
Businesses in China are struggling to remain afloat during the COVID-19 pandemic, especially with the country’s economy shrinking by almost 7% in the first quarter of 2020. This level of economic contraction has not been witnessed in the country for nearly 3 decades. According to Reuters, China’s annual growth will slow down significantly this year, with the growth rate expected to drop from 6.1% in 2019 to 2.5% in 2020, which is a weaker rate than during the Cultural Revolution in 1992.
But China being the epicenter of COVID-19 and the hardest-hit country for that matter, it is only safe to predict that this contraction will continue into the foreseeable future. About 4,000 Chinese had lost their lives from COVID-19 by mid-April 2019, as reported by China’s National Bureau of Statistics, and that has made people scared to even spend money on non-essential services. Everyone is saving for a rainy day, which is literally every day now. The city of Wuhan, and the Hubei Province as a whole, has been under lockdown for nearly 3 months now. Other major cities are also locking down in a move to contain the virus. And with everyone at home, the huge market that China is has been reduced into a small market that only consumes essential goods.
Here are some of the consequences of Covid-19 in China that companies need to know:
1. SMEs are struggling to survive
At least 15% of SMEs in China have closed shop permanently because of cash constraints and increased barriers to business, and another 50% might file for bankruptcies within the next three months if the status quo remains. As it stands, only about 20% of SMEs are operating in China, and about 50% of those who have closed temporarily are unsure of their time frame for resumption. Although SMEs are not as hard hit as bigger corporations in regards to labor shortages, their operations are greatly threatened by supply chain problems and decreased consumer demand.
2. Impact of coronavirus COVID-19 on shipping
The shipping industry in China has been hit hard by the closure of most terminals and ports all over the world. Workers in shipping companies have either been advised to work from home, or they have decided to quit their jobs altogether. And with many manufacturers halting operations temporarily, there is a lower demand for commodities and raw material from China. The silver lining in all this is that the reduced need for shipment has pushed freight rates lower.
3. Government interventions
China’s central and local governments have made several interventions in a bid to cushion the economy from collapsing. Their supporting policies are mostly geared towards lessening compliance burdens for businesses, offering incentives to employers so that they can keep paying their employees even with lowered profits, improving social security benefits, lowering energy cost, and ensuring steady medical supplies and daily necessities for the working citizens. The government is determined to have businesses resume production, so they have put measures in place to facilitate foreign trade. That will keep many businesses especially in the shipping industry afloat.
Chinese companies are benefiting from the provision of tax and fee reductions and exemptions. China company registration processes are more lenient now, new companies are getting more financial support from the government, and strategies are in place to help businesses overcome the difficulties caused by COVID-19. The economy might take longer to recover, but there is hope that business operations will resume earlier than anyone could have predicted. The economy recovered quickly in 2003 after the SARS outbreak, so the same might happen once the COVID-19 is contained.
4. Disrupted supply chains
Manufacturing and export industries in China are almost completely shut down. While that has affected the global economy as a whole, Chinese companies have been hit the hardest. The GDP value of the Chinese economy as of now makes up 22% of the global economy, so the world will be severely disrupted if the country’s supply chains are disrupted more than they already have been.
5. Falling industrial output
China’s industrial output fell by slightly over 1% in March compared to February. Economists were expecting a bigger drop than that, so that could be a good indication for retailers. That is also an indication that the consumption rate isn’t as bad as initially predicted. However, fixed-asset investment fell by 16% in line with expectations.
The last 3 months have been hard for companies operating in China, with COVID-19 spread reducing their activities to a minimum. However, thanks to the government’s quick response, there is hope that the economy will recover in good time to save businesses from collapsing.
About the Author
Martha Payne is a Personal Growth Coach with 10 years of experience working as a Business Development Professional. She is truly passionate about nurturing talent and ideas that evoke transformative change in individuals, teams, and organizations. Her focus is to help organizations develop leaders for the future – unleashing the full talent, passion, and potential of individuals (in particular Millenials) through tailored leadership development and coaching programmes.