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China's New Normal: Caution in "Coronaverse"



May 2020


China’s New Normal

China was the first country to contend with and recover from the COVID-19 pandemic. Factories, businesses and public venues reopened in March just as the rest of the world began its lockdown. According to China’s National Bureau of Statistics, both industrial output and exports are up in April, rising 3.9% and 8.2% from last year.


As China regains its footing in the post-COVID world, there has been a dramatic shift in mindset that has given rise to several key trends. Specifically, in today’s newsletter, we would like to explore China’s heightened sense of cautiousness affecting individuals, businesses and government.


Cautious Consumers

The most visible sign of China’s “new normal” is the focus on health and hygiene to prevent a resurgence of COVID-19. There is a pervasive use of face masks and gloves in public, business and schools, even months after the lifting of travel restrictions. As a result, mask manufacturer stocks have surged 69% from January to April of this year. In addition, fever temperatures are taken routinely at most entry points and individuals are required to display their “health status” on mobile apps regularly throughout the day. These apps generate a color QR code (red, yellow and green) that determines whether individuals have been in contact with confirmed COVID patients or in COVID hotspots. A green code allows for entry to public venues, buildings, stores and public transport, while a yellow and red code directs the individual to immediate self-quarantine or government quarantine.


Consumer wariness has also affected consumption. While the CEIC has reported that consumer confidence has rebounded, retail sales figures of consumer goods from January to April have dropped 16% compared to the same period last year. The drop in consumption was also observed in consumer surveys conducted by McKinsey. Survey results indicate that a majority of respondents had experienced a decline in income and have been cutting back on non-essential spending.


Areas that showed the biggest gains in spending include groceries and household supplies as families quarantined at home. Gasoline spending was also up after travel restrictions were lifted as individuals preferred to drive cars rather than to risk taking public transportation. Fitness & wellness, as well as personal care & cosmetics were also areas where spending increased. Data mined from JD.com, China’s largest online retailer by revenue, reports that spending on home gym equipment surged by over 90% in April, as consumers, more than ever, prioritize health and fitness. Novel Coronavirus Perspectives


Circumspect Government

This sense of cautiousness has extended to China’s government, particularly over concerns about a potential second wave of infections. After new cases were detected in Wuhan in mid-May, the government tested the entire population of Wuhan (11 million inhabitants) in just 19 days.


The government’s spending to combat COVID-19 has also been careful. While China has issued bonds, offered subsidies, cut interest rates and reduced bank reserve requirements (which provided an additional $80 billion in loans to businesses), its spending was far more restrained than the half trillion dollars it spent following the 2008 financial crisis. Relative to other countries, China’s stimulus package appears downright modest. As of May, China spent less than 4% of its GDP to revive the economy, compared to the double-digit figures from countries such as Japan, US and Germany.


Consumer wariness has also affected consumption. While the CEIC has reported that consumer confidence has rebounded, retail sales figures of consumer goods from January to April have dropped 16% compared to the same period last year. The drop in consumption was also observed in consumer surveys conducted by McKinsey. Survey results indicate that a majority of respondents had experienced a decline in income and have been cutting back on non-essential spending.


Areas that showed the biggest gains in spending include groceries and household supplies as families quarantined at home. Gasoline spending was also up after travel restrictions were lifted as individuals preferred to drive cars rather than to risk taking public transportation. Fitness & wellness, as well as personal care & cosmetics were also areas where spending increased. Data mined from JD.com, China’s largest online retailer by revenue, reports that spending on home gym equipment surged by over 90% in April, as consumers, more than ever, prioritize health and fitness.


This sense of cautiousness has extended to China’s government, particularly over concerns about a potential second wave of infections. After new cases were detected in Wuhan in mid-May, the government tested the entire population of Wuhan (11 million inhabitants) in just 19 days.


The government’s spending to combat COVID-19 has also been careful. While China has issued bonds, offered subsidies, cut interest rates and reduced bank reserve requirements (which provided an additional $80 billion in loans to businesses), its spending was far more restrained than the half trillion dollars it spent following the 2008 financial crisis. Relative to other countries, China’s stimulus package appears downright modest. As of May, China spent less than 4% of its GDP to revive the economy, compared to the double-digit figures from countries such as Japan, US and Germany.


Vigilant Businesses

Factories and businesses have also been cautious about reopening and many have developed processes and protocols to reduce the spread of COVID-19. These include hand and shoe disinfection upon entry, staggered start times and lunch shifts to avoid congestion, mandatory handwashing and temperature monitoring several times per day. Windows are required to be opened three times per day for 30 minutes each time.


In order to maintain social distancing, companies have installed plastic partitions between workspaces and canteens and taped lines onto floors of factories and elevators. Meetings and teamwork have largely been replaced by videoconferencing and cloud-based collaboration platforms, driving the usage of apps such Alibaba’s DingTalk (1446% yoy growth in downloads), Tencent Conference (10 million active daily users) and Baidu Cloud Disk.


While the new sense of cautiousness may be tempered over time, there are clear industries that benefit from this trend, including pharmaceutical, medical supplies and equipment, digital health, fitness and wellness, videoconferencing as well as cloud-based communication platforms.

Interested in finding out how the COVID 19 pandemic has affected investing in China? Send us your questions here.











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