With stability returning across much of China we are starting to see the tangible impact of the COVID-19 crisis on China industry and the economy, and predictions are starting to made about future growth and stability.

Consumer behaviour continues to pivot into new territories, and overseas buyers are likely to be affected by lower supplies of goods such as laptops and even Christmas decorations as overseas orders fall sharply. The auto industry however is getting positive encouragement in the form of subsidies and production capacity returning closer to normal. New Zealand races for category dominance by increasing trade routes for kiwifruit, and domestic flights continue to increase as more routes come back online.

Economy and Trade

The forecasted economic growth for China in 2020 is expected be 1.2%  – much lower than pre-pandemic forecast of 6%, but still better than most other markets where a sharp contraction is expected. In 2021, the IMF expects China’s economy to grow by 9.2%

Shenzhen’s economic activity reached its pre-pandemic levels by 31 Mar, with Shanghai reaching 87.82%, Beijing 64.19% and Wuhan 32.67%  according to the WeBank economic recovery index.

Many of China’s foreign trade companies are turning to the domestic market and Alibaba’s eCommerce platform Taobao Budget due to a significant drop in international orders. Over 1.17 million companies have joined the platform recently, with 80% of them coming from the leading industrial hubs such as the provinces Guangdong, Jiangsu, Zhejiang and Fujian. 30% of these companies are those specializing in foreign trade and experiencing decreasing international demand.

In the first quarter, the balance of China’s import and export of goods trade decreased 6.4% YOY. From January to March, imported soybeans were 17.792 million tons, an increase of 6.2%; imported pork was 951,000 tons, an increase of 1.7 times; imported beef was 513,000 tons, an increase of 64.9%. Affected by the epidemic, China imported 61.91 billion yuan of medical materials and drugs, an increase of 14.8%.

Day to Day Life

As online shopping frequency increases, China’s National Computer Virus Emergency Response Center (NCVERC) has increased monitoring of data collection and usage of mobile apps. They have discovered that 20 out of 25 vulnerable apps belong to the fresh grocery and delivery businesses such as Meiri Youxian, Dingdang Kuaiyao and Tonghui Shenghuo.

Almost 75% of consumers in Shanghai believe it is safe to start patronizing restaurants and bars, with almost 40% of them visiting a bar or restaurant in March  8 times or more,  and 58% of them cooking at home more than 16 times.

China has released a new law draft that is classifying dogs and cats as pets, rather than livestock. This is not surprising, considering that in 2018 100 million Chinese households had a pet and 41% of them were taking their pets to grooming parlours.

Hubei, the province where Wuhan is located, is heading the country in live streaming. Over 30 county heads have launched their live streaming channels on Taobao Live, promoting the provinces fresh produce and specialties

For the first time ever, the 127th Canton Fair will be held online in June 2020, with Tencent as a technology infrastructure provider.

Brands

The hotpot restaurant chain Haidilao issued an apology and reduced the prices to the pre-pandemic levels after raising its prices by 6% and subsequent consumer backlash. The same approach was taken by the Shanxi cuisine restaurant chain Xibei, which had raised prices by 10%.

The Kiwifruit brand from New Zealand, Zespri, has chartered a vessel loaded with 4,500 tons of seasonal fruit, making it the third shipment of 2020 so far. The company is chartering more ships to get kiwis to China (the current plan increases dedicated ships from seven to nine in 2020), with transport time reduced to 10 – 14 days, compared more than three weeks by regular shipping service. Considering that China represents 20% of Zespri’s global market, it is not surprising that the brand is investing more to ensure its product is available Chinese consumers, in spite of the coronavirus pandemic.

ByteDance has launched the mathematical thinking learning platform “Guagualong Thinking”, along with the previously launched language AI platform “Guagualong English”.

Travel and Transport

The demand for domestic flights has recovered to 50% of the same period in 2019 while the number international flights are yet to see a significant recovery due to the government policy limiting one flight per week for each airline.

China United Airlines plans continue adding more flights with a plan to reach 96 per day by 15 Apr.

Air New Zealand resumed its cargo flights to China on 31 Mar.

85% of China’s consumers will have a household annual travel budget up to RMB 30,000 in 2020, with 40% of them having RMB 10,000 or less.

Auto News

Tesla’s plant in Shanghai has become its key source of growth, after laying off 75% of workforce in US factories. The output of this plant provided Tesla with the production of 102,672 units in 2020 Q1 (+33% YOY) with 88,400 vehicle units (+15% YOY) being delivered to consumers in the same period. Tesla also launched their flagship TMALL store on Alibaba’s main ecommerce platform, selling spare parts and accessories, and taking bookings for test drives.

The central government is extending purchasing subsidies and tax exemption policies for new energy vehicles (NEVs) for two years, and value added tax (VAT) rate is being reduced from 2% to 0.5%.

The automobile brand Cadillac paid RMB 3 million (US$425,000) to eCommerce influencer Austin Li for a live streaming session (he is best known for promoting and selling beauty products). However, there were no direct sales conversions recorded.

SAIC Volkswagen and GAC Toyota have reported the highest volume of sold vehicles in March among JV brands (60,000 and 49,500 units respectively). That said, both companies still saw the sales decrease compared to the same period in 2019 (dropping by 64.05% and 9.9% respectively).

The government of Shenzhen has announced they would add an extra 10,000 free license plates in 2020 to encourage automobile purchase.

Sources: ByteDance, NPR, 36kr, Tech Sina, CARNOC, China Tourism Academy, WeBank, NCVERC, Weibo, Canalys, Nomfluence, Global Times, New Zealand-China Trade Council, Cirmium, Darenji, Tencent, Canton Fair

Thanks to our PHD China Insights team for their contributions.

Visit our WeChat to view last week’s advice and detail on the recommendations for managing communications during this period.

We are providing a weekly update on the impact and implications for this current health crisis.

If you have questions or suggestions, please feel free to email us at:

Mark Bowling – CSO PHD China mark.bowling@phdmedia.com or Vladimir Prostran – Group Director Strategic Insights PHD China vladimir.prostran@phdmedia.com