Impact of Covid-19 on Chinese Businesses
Few of the diseases that affect mankind are dangerous. Even fewer of these diseases take the shape of global pandemics that shake the foundations of communities and cities. COVID-19 is one such virus.
COVID-19, more commonly known as corona virus is a disease that has been labelled as a ‘global pandemic’ by World Health Organization. Having been the cause of death of more than 100,000 people globally and affecting thousands more, COVID-19 has not just brought many countries to the brink of healthcare emergency, but has also caused havoc in all fields of business—be it healthcare, social, manufacturing, retail or services.
COVID-19 and Chinese Businesses—the Figures
At the time of writing this article, China is rebounding from the huge business losses incurred by the corona virus. Even though January and February saw the worst of the pandemic, with thousands dead, China is slowly trudging its way back as April comes to an end.
But what was the picture when corona virus actually struck?
COVID-19 emerged in late December 2019, quickly becoming the deadly virus that engulfed the Chinese city of Wuhan. As the virus struck, the holiday for Chinese Lunar New Year were extended for a week in order to limit the spread of the virus. As the concept of “social distancing” took hold, Chinese businesses were forced to shut down their operations, curtailing productions and laying off workers. This business shutdowns were not only limited to one sector, but affected all sectors equally.
Perhaps the greatest impact was visible on the manufacturing sector where the Purchasing Manager’s Index (China’s official measure of manufacturing activity) fell from a high of 50 to only 37.5 in January. This PMI is a measure of the country’s economic health and has a huge impact on China’s trade and business with other countries. Not surprisingly, this drop in PMI had a ripple effect on other countries’ export-import with China.
The virus’s impact on Chinese businesses can be gauged by the figures which state that approximately 429,000 businesses had either dissolved or had to suspend operations. Wholesale and retail business was the hardest-hit sector, where approximately 38% of the operations were dissolved. This was followed by leasing business and manufacturing sector where about 15% and 8% of operations were dissolved, respectively.
China’s service sector was also hit by the virus, whereas a large number of service firms closed down their business operations, incurring huge losses amid the shutdowns. Moreover, with the shutdowns came the fear of mass bankruptcies that economists were sure would eventually be the case. Considering the business losses in January and February, this was highly likely but China is now making its way back to normal times, with many businesses resuming their operations. The services sector includes small and medium-sized retailers such as restaurants, malls and movie theaters. As travel restrictions were also imposed on the people, they were forced to remain indoors—hence the business losses.
China’s Businesses—the Road to Recovery
Only after 6 weeks of the virus attack, China is back to recovery. Many of the businesses are back to work with factories operating at 60-70% of their operating capacity. Although the dropping PMI figures suggest that companies are facing an acute shortage of workers, this condition is further exacerbated due to the dependency on migrant workforce as China has about 300 million migrant workers.
COVID-19 inflicted more harm than was expected in China. Being the second largest economy of the world, China had to face huge losses when social distancing took over, disrupting normal life and dropping the stock market index. Even now, only about 30% of the small and medium-sized businesses are back to work. These cuts have a huge impact on the global supply chain as many of the businesses are returning to normal operations.
Still, the road to China’s recovery from the effects of the coronavirus is a bumpy one. Although many of the businesses are back to work, some of them need the backup of workforce to stay aboard. With the large number of migrant workers being laid off, chances are it would take time for China’s businesses to rebound from the impact of the virus. Currently, China appears to be in the early stage of an economic rebound but this situation still pose a significant risk owing to the danger of virus striking again.
All is not lost in the business world of China though. Some of the companies had sensed the effects of the virus, and had taken steps to deal with the situation. For example, Master Kong, the leading instant noodles and beverage producer had anticipated the economic slump that the virus would bring, which is why it shifted its selling efforts away from offline and large retail channels to online and E-commerce channels.
By thinking proactively, it was able to control huge losses, stock-outs and hoardings that followed the outbreak. Additionally, by continuously tracking the retail channels’ re-opening plans, it was saved from the disruptions in supply chain. Perhaps this is the reason that Master Kong was able to recover its supply chain by more than 50% in late February as compared to other businesses who had relied on retail channels for their operations.
The Last Word
COVID-19 proved to be more than just a virus. It halted operations, supply chains, productions and commercial activities by huge margins, incurring a chain of events that eventually led to business losses and stock market collapses—not just in China but worldwide. Now as the world recovers slowly from the shock of the virus, businesses are slowly moving back to their normal operations but it might take a whole year for them to regain their previous positions.
To deal with the current situation, businesses need to shift their focus away from the retail channels and strengthen their E-commerce and online channels. This will not only be helpful in recovering from the losses, it would also contribute to strengthening the collapsed supply chains globally and domestically.