Understanding China’s Post Pandemic Business Environment

by Joe

In last month’s blog, Word4Asia reviewed changes in China’s economy that have occurred since the Covid-19 pandemic first appeared.  We chiefly focused on changes in the way China’s consumers have adapted to the new realities.  In this month’s blog, we review the anticipated changes that China’s businesses are experiencing.

In July 2020, The Diplomat completed a  survey of 135 Chinese senior executives regarding their outlook on post-pandemic economic recovery.  The sample was not representative and was skewed toward high-tech and online companies (55 percent).  However, it did include a mix of industrial and automotive firms (11 percent), financial (8 percent), and consumer/retail segments (13 percent), as well as healthcare (8 percent), media and education companies.  

The survey revealed that 80% of the companies were experiencing a negative impact following the pandemic. A decline in sales, and resulting layoffs were expected.  This was true even for companies that were entirely focused on the Chinese local market.

As time has passed, 50 percent of the surveyed firms believed they’d have to reduce headcount by more than 25 percent.  In reality, it’s turned out that only 20 percent of large companies have been required to do so.  

One-third of the companies originally surveyed have had trouble paying their rent, making payroll, or paying their bills.  On the other hand, 20 percent of tech/online and large-sized companies have actually done better than projected.  Small and medium sized companies have fared the worst during China’s economic recovery.

To adapt to the difficulties many companies are experiencing in China, Chinese managers are already moving headlong into revising their strategies, tactics and operations.  In a recent study, the management consulting company, McKenzie, recommended the following actions:

Updating new product development roadmaps:  Updated plans must reflect the trends that have been developed throughout the pandemic.  Sparkling Zero series is performing extremely well. Brand upgrading is a major shift. Consumers are looking for higher quality, established brands. We’ve also captured in-home consumption by converting consumers to premium take-home packs, like mini-can multipacks, shifting away from big bottles. This shift could also be long lasting as consumers build in the habit of consuming higher quality products in a size that is right for them.

Developing new distribution channels:  In last month’s blog, we reported on the ways Chinese consumers have moved much of their purchase behavior to e-commerce.  Prior to the pandemic, Chinese consumers were already ahead of the rest of the world in total e-commerce spending.  Sales strategies will have to reflect the new trends, including developing different online and offline channels, including direct-to-consumer, social commerce, ecommerce marketplaces, and physical channels.   


For example, China’s convenience stores and drug stores have seen a long-term increase in consumption while clothing stores, and department stores have seen a long-lasting decline.  Manufacturers will either have to find ways to penetrate new channels or suffer an erosion in sales.

With the heightened attention in hygiene and health, Chinese businesses will be reviewing their supply chains to safeguard their employees and consumers.  Risk mitigation will be, and alternate material sourcing should already be underway.  These changes have been felt differently across various industries.  For instance,“contactless” car return service, and other self-service measures, including delivering disinfected cars for pickup and drop-off by customers in community areas.  Store employees were also provided with protective equipment and disinfectants to prevent virus transmission.

Improved flexibility:  The world may be in store for future pandemics.  The way the environment is changing, it’s almost a certainty.  The world economy is also increasingly volatile.  Chinese management teams adopting a more flexible perspective and building contingencies into their plan’s organizations.  Chinese firms have been optimizing their investment in ad campaigns, to actually reduce consumer demand, and re-negotiating contracts.

The technology sector is one area which is not at all certain at this time.  Over 40-percent of Chinese tech firms have a level of concern regarding access to global technology.  The US-China trade war is one reason for this, as the United States has tightened down on Chinese access to American technology.  In addition to the United States, other leading tech nations, such as Japan, South Korea, Germany and Singapore are also de-coupling with China.  The majority of executives surveyed by The Diplomat have forecast some level of U.S.-China decoupling in the technology sphere. Looking out five to 10 years from today, in fact, across all company types — local Chinese tech and non-tech companies, and MNCs with headquarters in the U.S. or non-U.S. countries — only a minority believe we will have a globally open marketplace where Chinese and U.S. tech companies continue to compete in each other’s home markets.  In response, Chinese tech firms are planning to access more of their technology from other Chinese firms within the PRC itself.

The pandemic has changed business across the world.  Business in China, which has for many years experienced a long trend of annual growth, is clearly at an inflection point.  How its managers address this new challenge will have an impact on any organization with objectives there.  At Word 4 Asia, we make it our business to keep our network members and stakeholders abreast of these changes.  We’ve succeeded in helping our clients accomplish their objectives in China by understanding the nations’ regulatory requirements and respecting  its culture and values.  If your organization is interested in possibilities in China, we would enjoy a conversation with you.  Our knowledge, experience and mainland network may be just what you need to succeed.  Feel free to contact us at: gene@word4asia.com

https://thediplomat.com/2020/07/after-covid-19-rebooting-business-in-china/

https://www.mckinsey.com/featured-insights/asia-pacific/how-consumer-companies-in-china-are-preparing-for-the-next-normal-a-virtual-roundtable

https://www.mckinsey.com/~/media/mckinsey/featured%20insights/china/china%20still%20the%20worlds%20growth%20engine%20after%20covid%2019/mckinsey%20china%20consumer%20report%202021.pdf

https://wtop.com/news/2020/01/top-10-countries-for-technological-expertise-ranked-by-perception-2/

Building Bridges Over Troubled Waters

by Joe

Anyone who has not been in a coma for the past 12 months can speak to the challenges of 2020. I cannot add much to the macro review of last year which has not already been said, repeated and then responded to.  A few friends and of course our loyal Word 4 Asia Consulting clients have asked me “How is it going for you”?  Word4Asia has served a liaison between Western nonprofits and parallel organizations in China. Our primary roles are advising but also bridge building.  When our friends at SARA, in Beijing, wrote to ask what the view of religious people in America thought about events occuring  iin China, specifically in light of the world-wide pandemic, we gladly responded. After all, building greater understanding between the peoples of our two great countries is as important to us now as it has ever been.  

Our work continues to be about building relationships across the small ocean which divides us.    How do we interpret recent events in Hong Kong?  What is the truth regarding the Covid virus, it’s origins and current status?  How has American rhetoric towards trade and human rights impacted Anglo-Sino relations?  What do the most recent religious policies and regulations mean?  What is behind the recent focus on Sinicization?  Will it permanently alter the shape and ethos of the five legal religions in China?  Making all the previous questions more intriguing is the lack of international travel. While absence may make the “heart grow fonder” it also has potential to create unwarranted suspicion and misunderstanding as well.

For building better understanding cooperation with the people of China, there has never been a better option than face-to-face dialogue.  When will this be possible again?  Frankly, Word 4 Asia has no answer, but, so far, neither does anyone else. Until Covid is under control, full routine flights between the USA/China are not going to happen.  No one is more disappointed than the team at Word 4 Asia, and we thank our clients for their continued understanding during this difficult time. While we live in this uncertain reality, 2020 was a good year for Word4Asia.  We were able to assist our clients in the completion of their positive and worthwhile objectives in spite of the challenges. I give credit to the following dynamics for being able to report this.  

  • Our exceptional staff who understand China far better than I ever can. 
  • 25 years of personal relationships in China.  Trust is built over  a lengthy period of time. When relationships move from trust to love, the bond is never truly broken. 
  • Clients who actually listen to counsel and have long-term objectives. A journey of a thousand miles not only begins with the first step, but sometimes we must take a rest or even a couple steps back.
  • Many wise advisors in China who give us invaluable insights. They include business persons, politicians, pastors, party members and friends. Their combined words will paint the China mosaic for us as we continually improve our ability to listen well. 
  • Clients who genuinely seek to be “friends” of China and will patiently learn to look at China through Chinese eyes. 
r

 For almost 25 years now, Word 4 Asia has kept our commitment to remain transparent and legal in all our transactions and dealings. When our clients come under our umbrellas, they also make a commitment to this path. Do we face frustrations?  Surely.  Do we wish the entire world could share our conclusions, thoughts, values and opinions?  Of course. Such is in our humanity, this insipient arrogance.  Bridge building is hard work. In the past year it might appear that both sides of the Pacific Ocean have shifted their shoreline a bit.  Word 4 Asia will assess the shifts, and find the bed-rock upon which we can establish a stable bridge for the next decade.  If your organization is seeking help to bridge the China divide, please do not hesitate to contact us. Word 4 Asia is looking forward to another great year in 2021.  Perhaps you can join us in flight when the skies are full again with happy travelers.   

Dr. Gene WoodPresident/Founder

Post Covid-19 Economic Recovery in China

by Joe

Any assessment of current affairs depends upon the selected sources. Our summary here is, in fact, deducted from the information reflected in the sources listed below.  Once, Miami Dolphin Coach, Don Shula, announced a game plan on Saturday.  On Monday morning following the game, a reporter asked Shula why he had changed his game plan at half-time on Sunday?  His response “When I have different information, I reach different conclusions.”  

The Covid-19 pandemic has resulted in an economic crisis in every economy in the world.  Here, in the United States, we are experiencing an economic recession that borders on an actual depression.  Down from a peak of 22 million in April, 2020, US unemployment is still in the 11 million range, or 8.4% of the total labor supply.  Some do not expect employment rates to return to pre-Covid-19 levels until into the next decade and there are three million small businesses that have disappeared and are not expected to return.  Economic conditions around the world are also similarly grim.  However, the Chinese economy is reporting significant improvement since the corona virus breakout.  We think it is important to understand this fascinating nation’s current economic status.

There are two major factors at work in the reported success of China’s economy.

First, the economic hit was never as strong in China as in other economies.  China was better able to contain the virus, due to strong government action, including mass testing (discussed in our August blog).  This enabled the Chinese economy to avoid the long shut-downs that other industrialized and developing nations endured.  Additionally, the CCP responded with “six priorities”, including employment, basic livelihood, company support, food and energy security, stable supply chains, and the more effective operation of government.  Centralized authority does allow for immediate compliance. 

China’s economy has shown comparative resilience versus the US economy in the midst of the Covid-19 pandemic.

Both the United States and Chinese economies are consumer driven.  In the US, consumer spending is more than two-thirds of our total GDP.  Our national government provided several economic stimuli plans to protect the economy; the EIDL small business grants through the Small Business Administration, the PPP (payroll protection program) which enabled businesses to avoid some layoffs and a $600 stimulus check that was sent to every home in the country.  It is important to note that the International Monetary Fund has given only one national economy a positive GDP growth projection in 2020; China. 

As in the United States, China’s economic recovery has been visible for months.  In August, consumer spending was up .5% versus prior year August.  Versus China, Canada, France, Germany, Italy, Japan and the United Kingdom have economies whose economies showed a dramatic contraction during the first half of the year.  Even with a more vibrant economy, Chinese growth in real GDP is expected to be just 1% over prior year. 

As in the United States, China’s economic recovery is not experienced evenly across all income brackets or regions.  China’s wealthiest citizens have fared the best since the pandemic.  In August, car sales were up 12% from prior August; this indicates that Beijing’s car buying incentives are having a positive impact on the economy.  Car sales are so strong that Chinese dealerships have been able to reduce and even suspend planned discount promotions. Similarly, more than a dozen luxury western brands – from fashion to cars – enjoyed double-digit revenue growth in the Chinese market.  In-mall shopping activity has also rebounded.  

Unfortunately, not everyone in China is experiencing the same recovery.  Those in the low to middle income categories have experienced a two-percent reduction in disposable income.  Migrant workers are also experiencing difficulties.  

The US government’s market investment to combat the impact of Covid-19 has been comparatively modest versus other major economies such as Germany and Japan. Economic experts have stated concern regarding the long-term impact of these decisions.

The long-term prediction for China’s economic recovery is V-shaped, according to Christophe Barraud, Chief Economist at Market Securities.  This is because China has a much larger potential for real growth in total output.  According to Barraud, China has a capacity to increase real output by 6% annually, while more advanced economies can only by 1.5%.  In contrast, economic recovery in the United States is projected to be “W”-shaped or possibly “swoosh” (as in the Nike ‘swoosh’) shaped.  Federal Reserve Chairman, Jerome Powell has urged Congress to inject more cash into the economy than the current administration currently has.  US total investment into various post-Covid-19 stimuli is in the range of 15% of GDP.  Conversely, the EU nations have invested 30% and Japan has invested 20%.  Jeffrey Kleintop, Chief Global Investment Strategist at Charles Schwab, has said “Powell is right to call for more fiscal stimulus to aid the US recovery”.

In this fast-changing world, where decisions about your Chinese projects must be made with reliable information and expertise, Word4Asia is your waiting and reliable partner.  If your plans call for our more than 20 years of success in China, we would love to discuss them with you.  You can reach Dr. Gene Wood at gene@word4asia.com

Our Sources

https://www.google.com/amp/s/amp.cnn.com/cnn/2020/09/15/economy/china-economy-retail-intl-hnk/index.html

https://www.ft.com/content/e0e2940a-17cb-40ed-8d27-3722c9349a5d

https://markets.businessinsider.com/news/stocks/economic-outlook-fed-call-more-stimulus-has-point-strategist-2020-9-1029623447#

Confronting the Covid-19 Challenge

by Joe

The Word 4 Asia blog has often contrasted the differences, as well as the similarities, between American and Chinese culture.  We believe that a better understanding of how each culture perceives the world, and behaves within it, is a successful foundation for lasting partnerships between our nations, and our nations’ businesses.  Of course, the biggest story across the entire world in 2020 is the corona virus and how all peoples and nations have responded.  Our blog this month describes how mainland China and Hong Kong have each been able to successfully ‘flatten the curve’.  For the sake of this article we will use the official numbers reported by both countries. The United States, because of our own traditions and culture, has not fared as well and, as of 9/1/20, six months since the pandemic first shaped our present reality, we continue to struggle.

Our two nations have a fundamental difference in priority.  In general, China strongly values community focus.  The United States has historically honored the importance of the individual.  This cultural difference has led to the development of two very different ways of leading each nation’s people through a threat as serious as Covid-19.  In China, community focus leads to personal refusal of putting anyone else at risk.  The Chinese would rather sacrifice some personal liberties than risk extensive exposure to the masses. High density housing in China makes this all the more a factor in their approach.  In the United States, we still teach Patrick Henry’s famous cry, “Give me liberty or give me death.”

Chinese Provinces Aid Medical Team in Wuhan,Hubei to ruturn to Hometown after finishing their work fighting the COVID-19/coronavirus.

According to data released more than 80% of China’s corona virus related deaths occurred in Wuhan.  After the situation there mushroomed and was understood China moved resolutely to take firm control of the situation.  The central government implemented stringent social controls.  Their example is one of the largest mass mobilization efforts in human history.  Examples:

  • All schools were closed
  • All people were forced, and kept, in-doors.  One facet of this included the implementation of formal door-passes for people to get into and out of their apartments and homes.  The entire city of Wuhan, at one point, was closed off; no one was let in, or out, of the city.  
  • More than a dozen huge, temporary hospitals were assembled and thousands of extra medical staff were deployed to Wuhan.
  • Infected people were isolated on an enormous scale, in stadiums, exhibition halls, and anywhere else that could be co-opted for the purpose.
  • China’s huge tech industry also focused on the problem; Tencent and Alibaba both developed ‘health code’ apps that helped monitor and control the spread of the virus.  These apps are similar to ones developed by Google and Apple and widely used in South East Asia and Europe.  All of these rely on Bluetooth technology to detect close contact with infected people.  

China’s response was systematic, comprehensive and coordinated.  Their lockdown was more intense than nearly any other place in the world.  

On the other hand, Hong Kong managed to avoid lockdown and there are several important reasons why they could.

First, Hong Kong had already experienced the SARS epidemic.  The people there were able to use their experience in that earlier event and that made them much more alert and diligent.

Hong Kong, Hong Kong – May 21, 2020 : “Please Don’t Gather” sign outside the football pitch in Kowloon, Hong Kong. The Hong Kong government has imposed restrictions in form of a social distance law as a preventive measure against the spread of coronavirus.

In addition, Hong Kong instituted strong border control and tight quarantine measures.  Examples:  nine out of twelve border checkpoints were closed in January, and starting in late March the city banned all non-residents from entering Hong Kong.

Also, Hong Kong resurrected its network of ‘Neighborhood Committees’ as part of its defense against the virus.  These largely volunteer staffed committees were led by scientists and medical experts and were directed in contract tracing activities such as daily door-to-door check ins and monitoring of ankle bracelets (worn by anyone who had been infected by the virus and used to track and control patient movement).  Local Neighborhood Committees were empowered to seal homes shut, preventing anyone inside homes suspected of infection from leaving until testing and contract tracing had been conducted.   

As mentioned earlier, America’s approach to the pandemic has been very different.  At this time, Covid-19 continues to spread throughout our nation, but there is no centralized mandated control of the situation.  Policy is left to the States and in some cases the city officials. Many of our citizens continue to resist the instructions, advice and direction provided by the CDC with regard to the use of PPE, social distancing, and rigorous hygiene.  We have seen stay at home guidelines lifted once situations were deemed ‘under control’.   Today, we have over six-million cases, over 24% of global cases.  We’ve had 184-thousand deaths, almost 22% of global corona virus-related deaths (keep in mind that the US population is only 4% of the total world population).  On the other hand, despite the fact that Wuhan was the origin of the virus, reported Chinese deaths related to Covid-19 are only 4,634, approximately .03% of their population.  In the US, Covid-19 related deaths are approximately .06% of our population.  

NOTE: Of course, there is legitimate debate regarding whether all deaths reported were caused by Covid 19 or whether these figures simply report those who died were diagnosed as having Covid 19. We also have chosen here to use officially reported figures to illustrate a cultural differential.

The point of this article is not to debate cultural values.  Our intent is to simply describe how each nation has responded.  In the United States, we have a heritage of protecting the ‘civil liberties’ and ‘human rights of our citizens.  Does the well being of the community supersede the rights of the individual? How a country responds in crisis reflects assumptions of priorities and values. We wish well for both countries and quick resolution to this challenging time. Hopefully COVID 19 is something we look at in the rearview mirror in 2021.  

Word4Asia works hard to help our clients understand the challenging environment in China.  It is a country full of promise where we have spent over two decades helping our clients achieve their goals.  If your path is leading you towards China, we hope you’ll contact us.  You can reach Dr. Gene Wood at gene@word4asia.com

 

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