Advertisements

No Customers, Closed Stores: Chinese Entrepreneurs Brace For The Worst Amid Coronavirus Outbreak

Spread the love

Zhou Yuxiang was not in the mood for festivities during China’s Lunar New Year holiday this year. The 30-year-old CEO of Shanghai-based software startup Black Lake Technologies had to figure out how to manage his company amid the country’s deadly coronavirus outbreak. Working from home to comply with local quarantine rules has lowered productivity, while expenses remained high as he still needs to pay rent even when no one is using the office.

What’s more, Zhou says, clients are slower to take on new contracts as factories remain shut and production is delayed, hurting his otherwise fast growth.

“This epidemic caused production suspension for a considerable number of factory clients,” he says, who counts 300 factory owners as customers of his cloud-based management software. “Unpredictability on when factories could resume production has increased uncertainty for our first quarter growth.”

As the deadly virus, temporarily called 2019-nCoV, shows no sign of slowing, China’s vast business scene is taking a hit. While some companies, including Zhou’s, hope to recoup any losses before the year’s end, others are suffering a much more devastating blow.

This is because the epidemic’s economic damage is far and wide. It is believed to be more contagious than the 2003 Severe Acute Respiratory Syndrome (SARS) epidemic, causing the Chinese government to impose nationwide mall closures, movie cancellations and factory shutdowns to prevent the disease’s further spread. As manufacturing and business activities cease, first quarter GDP growth will plummet to 3.8%—which equals to $62 billion in lost growth—and drag full-year GDP growth below 6% to 5.4%, according to UBS economist Wang Tao.

Sectors that are hardest hit include catering, entertainment, hospitality, retail and transportation. These businesses tend to have heavy inventory or a lot of expenses, but they can’t generate any meaningful revenue when people stay indoors.

Jia Guolong, founder of popular restaurant chain Xi Bei, told local media this week that his company only had enough cash for the next three months. He still needs to pay rent and salary to more than 20,000 employees, even when his restaurants are largely empty. To preserve cash, Hong Kong’s flag carrier, Cathay Pacific has asked its 27,000 employees to take three weeks of unpaid leave, warning that the condition is as grave as the 2009 global financial crisis. And fast-food operator Yum China is expecting negative impact on 2020 full-year sales and profit, after temporarily shutting down 30% of its stores in China.

While these larger businesses may eventually have the resources to weather through, smaller startups could experience a life-and-death moment. Zhang Yi, founder of Guangzhou-based consultancy iiMedia Research, says he won’t be surprised if a wave of bankruptcies occur. And Wang Ran, founder of Beijing-based investment firm CEC Capital, urged startups to do whatever they can to survive.

“Downsize if you need to, relocate if you need to and lay off people if you need to,” Wang wrote in a recent blog post. “Only those who lived through this can see spring, and have a future.”

Beijing has put out rescue measures. The country’s central bank, the People’s Bank of China, announced on February 2 that it would pump $174 billion worth of liquidity into the markets to help cushion the impact. Local governments have called for rent deductions and more flexible salary arrangements, with the Shanghai municipal government promising tax and insurance refunds to employers who don’t engage in layoffs.

But analysts say business survival may ultimately depend on whether the virus can be contained. Since originating in the central Chinese city of Wuhan in December, it has spread across the country, infecting more than 28,000 people and killing over 500. There are now coronavirus cases around the world, including Japan, Thailand, Germany, the United States and the United Arab Emirates. The World Health Organization declared the outbreak a global health emergency and dozens of nations, including Italy, Singapore and the U.S., have placed travel restrictions from China.

“The longer this drags on, the bigger the damage,” iiMedia Research’s Zhang says. “If it lasts for another month, then it would be unbearable for any business.”

Startups are doing what they can to minimize damage. Black Lake’s Zhou is offering discounted services, especially to clients who are based in the most affected areas. Zhou Wenyu (not related to Zhou Yuxiang), founder of Shaoxing-based software startup Youshupai, is slowing down marketing activities and transferring its first quarter sales goal to the second quarter. And Joanne Tang, founder of travel and marketing agency Infinite Luxury, says she is diversifying to other Asian markets while reminding overseas-based clients not to reduce efforts in China.

“For sure, we are in a challenging time,” Tang says. “We have to monitor how it goes, but we won’t be standing still and just wait until this is over.”

I am a Beijing-based writer covering China’s technology sector. I contribute to Forbes, and previously I freelanced for SCMP and Nikkei. Prior to Beijing, I spent six months as an intern at TIME magazine’s Hong Kong office. I am a graduate of the Medill School of Journalism, Northwestern University. Email: ywywyuewang@gmail.com Twitter: @yueyueyuewang

Source: No Customers, Closed Stores: Chinese Entrepreneurs Brace For The Worst Amid Coronavirus Outbreak

CNBC’s Eunice Yoon reports on how the coronavirus outbreak is expected to take a serious toll on China’s economy. Expect supply disruptions as China takes measures to contain an ongoing coronavirus outbreak, says REYL Singapore’s Daryl Liew. “The sharp action taken by the Chinese government to basically delay workers going back to work is definitely going to cause some supply disruptions,” Liew, who is chief investment officer at REYL Singapore, told CNBC’s “Street Signs” on Thursday. With the virus infecting at least 7,700 and killing 170 in China, authorities have taken measures to curb the disease’s spread. At least three provinces have declared that businesses, other than some essential industries, are barred from resuming work before Feb. 10. In Hubei province, where the majority of cases have been found, resumption of local business has been delayed till at least Feb. 14. A “big question mark” remains over how long the disruptions could last, Liew said, as it depends on whether the situation can be contained. That comes as manufacturing numbers were showing “some normalization,” he added. “It’s a bit of a lagging indicator but the December ISM numbers have all been broadly positive, especially for Asian economies … which suggest essentially that global trade is normalizing. It’s not bouncing back significantly but it is rebounding,” Liew said, adding that that has translated to better manufacturing numbers. “The current virus … and the extended shutdown in China will definitely put a crimp to that,” Liew said. Potential impact on US businesses The outbreak has sent tremors across markets in Asia and beyond in recent days, as investor concerns about the potential economic impact grow. “We’re concerned that there could start to be … some overall impact on the Chinese economy which could lend itself, from a sentiment perspective, to greater concerns … for the global economy,” Shannon Saccocia, chief investment officer at Boston Private, told CNBC on Thursday. That could spillover into the performance of U.S. businesses at a time when the “strain of lower production” is being felt stateside, Saccocia said. “If we start to see that upended by the fact that factories aren’t opening and … we’re not able to get the components that we need from the Chinese economy, you know, that could … certainly slow any sort of manufacturing reacceleration that we were hoping for in the first two quarters of 2020,” she said. The Chinese city of Wuhan, the capital of Hubei province, is the epicenter of the outbreak, and authorities have placed multiple cities in the province under partial or complete lockdown. Wuhan and the surrounding region of Hefei and Jiangsu are major manufacturing hubs that work with American firms. But they have also been shut down due to the virus outbreak. “As an investor, you need to understand … where the supply chain starts and ends and factor in to your expectations … for those companies,” Saccocia said, though she acknowledged that it’s “a little early” to “paint the picture that half of the year is going to be meaningfully lower from a growth standpoint due to this virus.” For access to live and exclusive video from CNBC subscribe to CNBC PRO: https://www.cnbc.com/pro/?__source=yo… » Subscribe to CNBC TV: https://cnb.cx/SubscribeCNBCtelevision » Subscribe to CNBC: https://cnb.cx/SubscribeCNBC » Subscribe to CNBC Classic: https://cnb.cx/SubscribeCNBCclassic Turn to CNBC TV for the latest stock market news and analysis. From market futures to live price updates CNBC is the leader in business news worldwide. Connect with CNBC News Online Get the latest news: http://www.cnbc.com/ Follow CNBC on LinkedIn: https://cnb.cx/LinkedInCNBC Follow CNBC News on Facebook: https://cnb.cx/LikeCNBC Follow CNBC News on Twitter: https://cnb.cx/FollowCNBC Follow CNBC News on Instagram: https://cnb.cx/InstagramCNBC #CNBC #CNBC TV

Advertisements

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this:
Skip to toolbar