Resilience Amid Challenges
China will overcome pressure on domestic and global business
By Michael Zakkour  ·  2020-02-16  ·   Source: NO.8 FEBRUARY 20, 2020
Staff at a smart technology company in Qingdao, Shandong Province in east China, adjust disinfection robots on February 11 (XINHUA)

The growth, scale and scope of the novel coronavirus outbreak in China has become one of the most talked about global subjects.

The virus is first and foremost a domestic health issue for China, with an increasing international potential. President Xi Jinping is leading a national effort to contain the outbreak while scientists and doctors in China and around the world are working to find a vaccine and/or cure.

The first order of business is to ensure the health and wellbeing of Chinese citizens and to prevent the virus from spreading further outside of China. Provincial and lower-level governments are coordinating with Beijing, citizen volunteers are doing heroic work in supporting the effort and each other, and the country has taken on a war footing to battle the virus.

Xi said on February 10 that the situation at the moment remains very serious but he expressed confidence that China can certainly obtain a full victory in the fight against the epidemic.

Beyond the implications for people's health is the question of the health of the Chinese and global economy as a result of this unprecedented situation.

Business in China

The Spring Festival holiday, from January 24 to January 30, coincided with the aggressive spread of the virus. As the scope of the problem widened, the holiday period was extended to February 2 and up to February 10.

Most businesses were closed during the prolonged holiday, and for good reason. Having millions of people working in proximity, whether on factory floors or in office buildings, or having the general public gathered in malls, department stores and shops, would do the opposite of containment and further spread the virus. The business shutdown was the correct, but painful choice, that had to be made by authorities and business owners.

The effects have been undeniably negative for China's current and short-term economic outlook, but at the same time, some valuable lessons and some new ideas have emerged.

For both blue- and white-collar workers there is solace in the fact that they will continue to get paid until things improve, but for businesses the loss of sales and productivity, if things do not improve, are of grave concern.

An immediate and obvious effect of the outbreak is that many factories remained closed and those that were running consisted of skeleton crews and reduced capacity. China and the world still depend on Chinese manufacturing to a large degree and the loss of capacity and output is a concern. The government has already called on companies to resume production while putting in place epidemic prevention measures.

Remote work is the new trend. With so many offices closed, companies have shifted to having people work remotely from home. While it's too early to say, there is potential for learning about the benefits of remote work in terms of decreasing traffic and the use of energy and technology, meeting the demand for a more remote work-based economy.

Consumption is down. China has successfully followed through on its effort to shift more of its GDP to consumption and services. In fact, consumption has been a bright spot for the economy over the past two years. An extended shuttering of stores, restaurants, markets and malls is disconcerting to both local and international operators.

E-commerce has great potential. Thus far the effects on China's world leading e-commerce economy has been a mixed bag of positives and potential negatives. Because stores and traditional physical outlets are either closed or running on reduced hours, and because people in big cities are largely staying indoors, online sales have held steady and in some cases have seen significant bumps up.

The food and beverage industry is being affected. The epidemic has touched the food and beverage industry in several ways so far. Restaurants, bars and coffee/snack shops have been shuttered, affecting an important consumption sector. The virus has also made delivering food and beverages more difficult. The good news is the government has done a great job of ensuring the larger food supply and keeping grocery store shelves well stocked.

If logistics, supply chain and last-mile delivery services run well, e-commerce will provide a lifeline for consumers, keep consumption humming and further entrench digital commerce in China.

Global business

One of the most important takeaways from the outbreak so far, and one that many around the world did not fully appreciate, is the depth and breadth with which the Chinese economy and Chinese businesses are integrated into the world economy.

To demonstrate the importance of the U.S. economy to the world in the 1960s, a saying was coined: "When America sneezes, the world catches a cold." In this case China has literally and figuratively sneezed and the world is in fear of catching a cold.

One of the most profound potential effects of the coronavirus is on global supply chains. Despite China now being a major consumer, service and technology economy, it is still the largest manufacturing hub in the world and hundreds of thousands of companies depend on China's factories to produce their goods.

Enterprises as diverse as Apple, Walmart and Nintendo, as well as many of the world's apparel brands, are reporting that their ability to bring products to market may be affected by an extended disruption in Chinese manufacturing.

Another thing that has surfaced is just how important Chinese consumers are to global brands and retailers. China has emerged as the fastest growing and most important market for many brands and retailers and the virtual shutdown of physical retail and the need to close stores could affect their overall 2020 sales.

For now, the effect has been limited and is being mitigated through e-commerce but still the concern is justified. Some brands have already announced that the slowdown may have a negative effect on their annual earnings.

The bottom line is that the world is intimately engaged with China in almost all aspects of making, moving, selling and buying virtually everything. Aside from the human toll, the epidemic is of great concern to businesses, governments and economists in China and the world over. This is a global human health and economic issue that will, if not contained, prove damaging to both.

This too shall pass

I remain optimistic that the outbreak will be contained, a vaccine and cure will be developed and a larger global epidemic will be averted.

In the long-term, several positive developments will emerge. The Chinese economy will have proven its resilience and strength in the face of a truly monumental challenge. Through adversity, many lessons will be learned about how to deal with Chinese/global economic challenges. The outbreak, as many do, will be a spur to further innovations in healthcare, economics, technology and services, and will provide an opportunity for constructive collaboration in these areas between China and the rest for the world.

Finally, I think that the people and government of China will use this unprecedented challenge as an opportunity to improve development and people's standard of living through applying the lessons learned during this time of duress.

The author is a U.S.-based author, consultant and op-ed contributor to Beijing Review

Copyedited by Rebeca Toledo

Comments to yanwei@bjreview.com

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