Global Business Development

China Blog Update – 4/13/20

(This is an update of our March 9, 2020 China Blog)

Bill Edwards, CEO of Edwards Global Services, Inc. (EGS), has been doing business in China for 37 years, starting with living in China from late 1982 through mid 1985. He has been the Master Franchisee for a U.S. franchise in China. EGS opened an office in Beijing in 2014 and we are currently helping four U.S. brands enter the Mainland China market. Our U.S. Clients are all consumer-faced franchise brands.

Needless to say, things right now are different than ever before. The following are extracts from a variety of information sources and our network inside China on consumer-focused issues post the Wuhan Event.  This is bipartisan and does not reflect a point of view.

Employment

“The official urban unemployment rate of 6.2 per cent in February understates the true level of joblessness and doesn’t include China’s 280m migrant worker population, many of whom haven’t returned to work yet. Close to 500,000 small and medium-sized businesses, the heart of the economy, which were sidelined politically before the crisis, are reported to have failed in the first quarter alone., Financial Times, April 10, 2020

Consumers Trends

Burger King, Dairy Queen, KFC, McDonalds and Starbucks closed over 7,500 restaurants in China by the end of February. Today, over 90% of these restaurants are back open.

Our company’s Managing Director for Greater China based in China says, “the businesses of China have recovered about 60-90% depending on the region. We are still required to wear face masks everywhere and practice social distancing (which is not common in a densely-populated country). Domestic travel is still difficult because place to place travelers have to be quarantined back and forth. Retail, fitness and F&B businesses will need 3-6 months to return to normal levels as people still prefer to eat at home and order in as they did for more than 40 days in February and March. Schools and universities will not start up again until September for the new school year.

“Shopping malls and stores in China have quickly reopened as the government promotes a return to business as usual, only to see consumers stay home and keep their purse strings tight or shop online. Customer traffic is ‘less than half of usual levels’ said a worker at a Walmart store in a Shanghai suburb late last month. The government has in recent weeks highlighted a brisk recovery in business activity, touting efforts to contain the new coronavirus. Shopping centres and restaurants that had closed to stem the outbreak’s spread have rushed to reopen. About 80 per cent of restaurants and more than 90 per cent of commercial facilities have resumed business across China, according to the Ministry of Commerce. But consumers, increasingly wary of government pronouncements and state media, do not feel safe going about their business as usual” Extracts from an article by the Financial Times on April 11, 2020

Life does go on. Yum China Holdings, Inc.‘s newly-acquired controlling interest in the casual-dining brand Huang Ji Huang group, a simmer pot concept, and emerging fast-food restaurant San Fen Bao, to its portfolio. Founded in 2004 and headquartered in Beijing, Huang Ji Huang has over 640 restaurants in China and internationally. Following the acquisition, Yum China will establish a ‘Chinese dining business unit’ comprising three core Chinese dining brands: Little Sheep, East Dawning, and Huang Ji Huang. “Global Franchise’, April 8, 2020

Good news for Chinese small businesses. “Insurance companies in China are taking on an unusual mission: They are promising to cover business losses from the coronavirus pandemic, as hundreds of millions of people return to work, and the country tries to rev up its economic engine. Since February, dozens of Chinese property-and-casualty insurers have rolled out new policies or expanded existing ones to provide compensation when workers contract Covid-19, the respiratory disease caused by the new coronavirus. The insurance payouts would help companies that are forced to close temporarily if staffers fall sick, other employees have to be quarantined and business activities are disrupted. Some of the policies are provided free-of-charge by insurers, while others have low premiums that are subsidized by local governments. Many sellers of coronavirus-related coverage are state-owned insurers, which can likely fall back on state support in the event of major losses.” Wall Street Journal, April 10, 2020

Most Chinese factories are now back to operating at around 80% of capacity. Some are pushing 100%. Foxconn, the Taiwanese contract manufacturer which assembles the majority of Apple’s iPhones in China, says that with the help of tests for the virus and chest x-rays it has been able to get all its operations on the mainland back up and running with no risk to the health of its workers. In a call to investors on April 1st it reported that it was on target to provide Apple with all the 5g iPhones it needs for the launch of the device this autumn. Many of the measures that made China’s great reopening possible were boring-but-important changes to existing protocols; more hygiene measures, more separation between workers, and screening (companies in China and elsewhere are trying to get their hands on a lot of tests for sars-cov-2 infection). The Economist, April 8, 2020

“Chinese consumers are shopping again, in a timely boost for the beleaguered economy, as they regain some semblance of normal life after unprecedented lockdowns aimed at containing the coronavirus pandemic. Demand for travel, cosmetics, outdoor gear and food has surged in recent weeks as policy-driven stimulus kicked in, workers returned to offices and factories and the government started easing restrictions on people’s movement. Transport bookings rose more than 50 per cent, while hotel reservations increased by 60 per cent during the three-day tomb-sweeping Ching Ming Festival through April 6, according to Trip.com Group. Online retail orders have likewise boomed, according to e-commerce site Pinduoduo. South China Morning Post, April 8, 2020

Savills China Retail believes that China’s retail sector will fully recover by the second half of the year, once as the country has recouped from the COVID-19 pandemic, reported Retail News Asia. Entertainment centres, shopping malls, restaurants, and gyms that were affected by the government-mandated lockdown in late January are predicted to flourish post-coronavirus, as consumers cautiously retreat back to their old shopping habits. At present, shopping malls in Shanghai have 30 percent fewer shoppers compared to before the outbreak. However, starting today, malls will return to their regular operating hours, from 10 AM to 10 PM, and most retail tenants will reopen to the public.  Since the reopening, some sources have already revealed long queues outside fashion stores in IAPM mall, as well as difficulty in finding parking slots and seats at coffee shops.  Even though some restaurants have permanently closed due to the unaffordability of labour and rent costs during the outbreak, those who did survive were allowed to reopen as soon as they have reapplied.: Source: Property Guru Report, early April.

Car Sales

(Car) “quarterly sales declined 42% on year to 3.7 million vehicles, the government-backed China Association of Automobile Manufacturers said Friday. While demand started to return in March as China’s epidemic situation stabilized, sales for that month were still down 43% on year at 1.4 million vehicles. Sales had plunged 79% in February.

The rebound is already struggling to sustain its momentum. The increase in visits to dealerships trailed off in April, said Lin Huaibin, an analyst at IHS Markit, as Chinese consumers—their confidence still fragile—watched the virus ravaging the U.S. and Europe and realized the scale of the crisis facing the global economy. This fresh “demand shock” would cause auto sales to fall by about 14% this month from the same period a year earlier, Mr. Lin said, compared with a very weak April 2019, when sales fell 15% on year.

Government and Landlord Support

Just in from Deloitte:  The Chinese central government has unveiled a raft of measures to support the market amid the novel coronavirus pneumonia outbreak. The support plan for SME’s mainly includes:

  1. Easing tax burden: on individuals and corporations
  2. Financial support: increase credit supply, reduce difficulty and cost of loan applications
  3. Stability of employment: delay collection of social insurance premium.

Also, property developers/landlords, including Wanda Group, China Resources, Poly Group, Country Garden, etc. have announced waiving rent for tenants for 1-2 month durations.

Travel

 “United UAL Airlines could announce it will soon resume passenger flights to China, which is rebounding after strong measures brought the coronavirus outbreak under control. United would likely fly between San Francisco and Shanghai Pudong. Demand is increasing for United as business resumes in China and its U.S. corporate customers re-establish supply chains.” Forbes, April 10, 2020

But….” Hotel stay in Beijing only with negative corona test from April 12. In order to stay in a hotel in Beijing from April 12, guests will have to provide a negative result of a nucleic acid test that was taken within the last 7 days as well as national or Beijing health codes that show no abnormal status. China Legal Services, April 10, 2020

 In Summary

We keep our thumb on pulse of the Chinese business market, monitoring daily changes and trends, and have insight on how you can protect and grow your brand in this critical market. We will update this China blog about every other week.

Feel free to reach out to Bill Edwards, CEO of Edwards Global Services, Inc., (EGS) to ask questions or share best practices at +1 949 375 1896 or bedwards@edwardsglobal.com.

“It is not the strongest or the most intelligent who will survive but those who can best manage change”. Darwin

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