Quasi-traffic jams returned to Beijing this week — that is to say, there was slight congestion on the ring roads at rush hour, and scooter-riders and cyclists actually had to wait at red lights before freely crossing multi-lane intersections. The central government held a teleconference over the weekend with 170,000 party cadres across China in an effort to jumpstart the economy, and the message seems to have resonated – Monday was easily the busiest day of the last six weeks. So, has Beijing roused from its COVID-19 slumber? No, not by a long shot, but there are finally stirrings. This week I look at some micro and macro level social trends across the next three quarters from which our readers can draw business conclusions — or at least, this early in the game, some predictions.

The reality of the Q1 commercial results is now undeniably clear — the combination of an early Chinese New Year and the public sentiment & policy reactions associated with the Coronavirus outbreak has resulted in virtual economic stagnation. To put the lack of public activity into relative terms, consider China’s box office ticket sales: from February 8-10 of 2019, China grossed over $360 million USD. That same period in 2020? Less than $4,000 in total. With consumer spending at a relative standstill, we turn to business indicators — the Caixin/Markit purchasing managers index (PMI) figures were released this week and were predictably dismal with the worst month on record. A local connection relayed to me that several regional factories have been instructed to begin to run their machinery, with or without inputs like raw materials and labour and irrespective of inventory positions. Power consumption is a key indication of business activity in this market. However, coal consumption, still a main source of electricity in China, is down by 1/3 from this point last year. As annually scheduled, all the state-provided central heating north of the Yangtze river will stop being piped in on March 15^th — stay tuned to review those consumption figures once that service is cut. On a rosier note, one can only imagine that local consumer activity will see notable increases as the weather improves, the infection rates continue to drop, and  isolation wears thin. With increased foot-traffic in mind, any companies still in need of masks, gloves or PPE to meet audit requirements should contact CCBC. We have been able to provide direct links to government and private sector suppliers, often with extremely quick turnaround times as one fortunate member discovered just this week when faced with a shortage that would have resulted in closure. While slowly relaxing on some fronts, these prevention policies are by no means disappearing, so please actively monitor your stock and any updates to government regulations.

The second quarter, depending on your perspective, will be a period of rebound for some and collapse for others. While official figures show that 80% of businesses are back to work, most shops and restaurants remain closed, factories struggle back to operation, and offices are quiet. What to watch for in Q2 is bankruptcies, as cash-flows run dry and organizations are faced with mounting bills. We urge members to continue to be vigilant with their suppliers and vendors during this period to actively manage cash-flow. Settle invoices strategically, ask for VAT discounts, and re-negotiate payment terms where possible to maximize the cash in the business. The government fiscal and monetary strategies will certainly alleviate some of those failures, but it is already alarmingly clear at street-level that many firms have shut their doors for good already. So many companies, especially those in tier-3 and 4 cities in China, do not operate in the traditional banking sphere and will not have access to preferred financing. When these companies go bust, what will happen to those out of work? Unemployment is a massive social challenge for China, and a 1% increase in that measure represents millions in this economy of scale. Already, we are hearing of many employees being faced with difficult choices as their companies run short of cash: quit your job now (with some small degree of severance), or work for free until we can start paying you again. Some are opting for the former, and will go back to their hometowns to take advantage of lower cost of living and parental pensions, and others are enthusiastically keeping the faith — likely because they realize that employment opportunities in the near future will be few and far between. Despite the labour laws in place and responsible HR actions being taken by so many, these will not be the last unfortunate stories you hear in this vein. We will also most likely see the recent reprieve from air pollution end, as more and more cars slowly take to the streets and manufacturing doubles down to make up for lost time. Many locals are still opting to drive instead of taking public transit as the fear of contagion persists, and the subway remains comparatively empty.

The latter half of the year will, with any luck, prove the return to near-normality that we are all eagerly anticipating. School will have resumed in mid-Q2, which has consistently been communicated as a key driver for the expat community to come back to Beijing (and China at large). Government spending measures will have trickled down into new construction and infrastructure projects, and consumers that put off major purchases like cars and real estate during H1 will dive back into the market. The autumn will show a baby-boom from the extended period that families were reunited, as millions of couples that normally only spend 10 days a year together were in quarantine for weeks on end. A shrewd Chinese friend debated me on this however, predicting the opposite: a surge in divorces after personal over-exposure during the COVID-19 forced isolation, with much of it co-located with in-laws. Tourism will begin to flourish again, and regular domestic and international flights will have the upper-middle class Chinese population in revenge-spend mode. The markets, while impossible to predict, will likely have stabilized, and the analysis of major financial institutions that they will still end the year in the black despite the challenges will bear out, for better or worse. On the topic of the stock market – an interesting metric from the COVID-19 phenomenon thus far was that A-Share trading volume in China this February was way up year-on-year – another rare example of success, as the industry doesn’t require much beyond an internet connection. There will be an influx of new start-ups and entrepreneurial ideas that will emerge as time goes on as well, with Coronavirus-related insolvencies resulting in cheap credit and the spurring of the resourceful nature of the Chinese businessperson. Remember, in the wake of SARS in 2003, a fledgling electronics chain in Beijing moved to an all-online model, and today, JD.com has since grown to be one of the world’s largest e-commerce platforms.

All told, it will be weeks and months trudging back towards the status-quo, and in many ways the goalposts have been permanently moved by this public health emergency. I ask that for those that have not yet done so, we at CCBC have extended our business questionnaire to Friday March 6^th, so please spend 5-10 minutes contributing your take to this important initiative. Our Red Cross Donation Portal remains open, and also note that the CCBC will be forging ahead with all our major event plans for 2020, including our Canada Day celebration in Beijing, tentatively scheduled for late June.

As always, if you have any needs or inquiries, please contact myself (Noah[at]ccbc.com.cn) or my colleague Edward Dai (Edward[at]ccbc.com.cn) in Shanghai at your convenience. Our China teams are thankfully healthy and all back in our offices, eager to assist during these fast-evolving times.