As China returns to work and a ‘new normal’ is formed, we are starting to see a more concrete picture of what a post-COVID-19 looks like for consumers and enterprise alike. It is clear is that there are some clear winners and losers from the COVID-19 crisis, and the return to normality is not linear for all industries. 

In China, January and February saw record decline in all industry activity, with retail sales down 25%, unemployment with the biggest single monthly jump from 5% to 6.1%, and likely much higher on a real basis   

Today China has largely returned to work on a broad scale with power usage from grid numbers suggested close to 80% of activity has returned. Some ports, particularly Shanghai and Tianjin reported nearly 90% of capacity returning.  Things are getting back to normal. 

But China is best described though as “many plays (or many countries) within a play (one country)” and the impacts of the shutdown are too varied to apply a one statistic. Although SOE’s are benefiting from government subsidies, SME’s are not seeing the benefit of tax concessions and rental reductions flowing through at a same rate.  For example, 25% of restaurants in Guangzhou are not expected to reopen, ever. So while 80% of SOE’s are back at work, regionally we are told SME’s are returning more unevenly at rates between 8 and 47% of enterprises.  Clearly the return to normalcy is not unified. The Central Government is focused on driving the big end of town back to work as they believe this will be a quicker switch to turn on the economy, but keep in mind over the past 5 years SME growth has been the hallmark of China being able to improve innovation, productivity and reduce inefficiencies between public/private sector.  We await the next round of fiscal policy to assist the SME sector in China. 

The discrepancy is also seen within industries. Incredibly, ecommerce giant Tmall says they expect Q1 revenue to be up 10%, reflecting the trend to ecommerce from the crisis. Both JD.com and Taobao launched during SARS so we are seeing history repeating. This time around the new adopters include middle aged (>40) who are also embracing buying fresh produce online and learning about services like eHealth.  In the younger demographic it is all about live streaming.  Taobao Live Streaming up 250% in Q1 to date, and each person online is averaging 6 hours a day on their phone, up from 4.5hrs, year on year. 

Unfortunately, the opposite is true for the hospitality, retail and property sectors. Food and Beverage sectors have been hardest hit. Lobster prices received in Australia fell from A$ 130/kg to A$50/kg and has only recovered to A$80/kg. Even where ports and logistics channels have reopened up, there are some significant lags. Only 2/3 of truck drivers are back at work and it is taking time for excess inventory to wash through the system.  

As we track the return to trend growth in China we believe that stimulus will follow a different track to what was witnessed post-GFC.  The evidence is already clear that the Central Government is focused on supporting key industries to get back to work.  There is also increased focus on healthcare in general with a focus on prevention and preparation for a potential future outbreak of COVID-19 or some other pathogen. This will not be a short-term measure. Healthcare was already changing rapidly in China this will only reinforce this trend.   We believe innovation in eHealth, as well as a greater focus by Chinese consumers of all ages on healthy lifestyle choices through exercise, healthier eating and supplements represents an important opportunity for investors and companies alike. 

 

To find out more, please join us on Friday, 27th March for our inaugural China “On the Ground” series, where we will be discussing these trends and more. The link to register and join our broader WeChat community is below: 

https://us19.campaign-archive.com/?u=321c4815a3433884288ff1a4b&id=3494cb6b02 

 

by  Jonathan Belz