COVID-19 road to recovery: What we need to learn from China
Updated 09:47, 28-Mar-2020
Daryl Guppy
Dong, a recovered coronavirus patient, receives a physical test before donating his plasma at a hospital in Nanchang, east China's Jiangxi Province, February 19, 2020. /Xinhua

Dong, a recovered coronavirus patient, receives a physical test before donating his plasma at a hospital in Nanchang, east China's Jiangxi Province, February 19, 2020. /Xinhua

Editor's note: Daryl Guppy is a national board member of the Australia China Business Council. He is the Australian representative with the Silk Road Chambers of International Commerce and an international financial markets technical analysis expert. The article reflects the author's opinions, and not necessarily the views of CGTN.

Restore, repair, revive, resuscitate or remodel? These 5Rs define business investment decisions and are a precondition for the big R: Recovery. Examination of China's economic and business response provides clues as to how local businesses may survive, and which businesses are better investments at current sell-down prices. Western economies can and must learn from China's experience.

"Remodel" is a major driver. The Chinese e-commerce site Taobao added 1 million new merchants during the quarantine period in China. They and other e-commerce platforms not surprisingly experienced more than 10 percent growth during the period. Ali-Health had a 7,000 percent growth rate so its clear business will need to remodel to embrace e-commerce and social media links in ways that are integral to their business model. These models are no longer just an adjunct to business operations.

China's "New Infrastructure" development in 2020 plan reflects this change and is focused on 5G networks, AI, industrial internet, inter-city transit systems, vehicle charging stations and data centers. China's leading role in these areas meant that the COVID-19 response was more sophisticated in terms of internet use than is possible in Western countries where 4G networks were overloaded making contact tracking, e-commerce, e-learning, e-health and even e-entertainment delivery more difficult. 

For some businesses it will be necessary to restore business connections and develop new networks and logistic chains. Some of their counter-parties did not survive the lockdown. Chinese exporters may find previous business links have fallen victim to a Western economic collapse.

Foreign universities may have an uphill task to restore confidence in their support for students. Restoring business connections will take time and effort to rebuild the levels of trust that prevailed prior to the COVID-19 crisis. Businesses that proved that they were not just Jiu Rou Peng You, or wine and meat friends, will find this restoration process easier.

This restoration may also be hindered by national policies, with some countries determined to reduce their dependence on China for political reasons. They are using the COVID-19 crisis as an excuse to justify their narrative that the world is too dependent on China and that this must change. It's an irony that some of the strongest proponents of this policy have no hesitation in sourcing masks and medical supplies from China.

China is preparing for its economic recovery from COVID-19 with e-commerce platforms. /Xinhua

China is preparing for its economic recovery from COVID-19 with e-commerce platforms. /Xinhua

Of all the 5Rs, business repair is easiest. With the exception of airlines, these are business activities that slowed during the quarantine period in China, but did not come to a complete stop. These companies suffered some damage, but this is easily repaired.

Demand for household goods, for everyday items and services are returning to normal fairly quickly. Some, like car sales and tourism, will take longer. These businesses were damaged by the lockdown, but not destroyed. Fiscal support measures including a suspension of government fees and charges and capital injections into credit markets has helped them to quickly get up and running. They form the majority of business survivors.

Access to easy credit is a key requirement for those companies that need to revive. For them, the lockdown was a near-death experience. These are the companies that almost went to the wall as cash flow dried up. It's not that they were marginal businesses prior to COVID-19. For many, the business model was based on just-in-time delivery and that's what kept the cash flowing.

When orders and payments evaporated the weaknesses in the business model was exposed. This has continued beyond a resolution of the COVID crisis in China with the collapse or slowdown on Western economies. If the businesses can be revived, then they will need to remodel their business approach. This is not just a domestic economic issue in China. It's also an issue impacting global supply chains and Western business approaches.

These businesses can be revived but the question is to decide if revival of the old business model remains appropriate.

Those in need of resuscitation are not necessarily in need of rescue from the scrapheap of outdated business practices. The high-tech start-ups in Shenzhen are in the cash-burn phase of development, the business that was unfortunate enough to first open its doors in anticipation of Chinese New Year crowds and the airline industry all need resuscitating capital investment.

There is the opportunity for investors to buy listed companies at bargain prices. For unlisted companies the priority is the search for new capital, domestic or foreign sourced.

Delivery companies like SF, medical suppliers, the online portals, e-commerce market places, and essential service providers all thrived during the lockdown. This expansion was due to exceptional circumstances and their growth will most likely slow and offer fewer opportunities for investment or business emulation. These changes in economic structure cannot be ignored but first-mover advantage has been dulled.

Just to talk of business recovery is too simplistic. Every Chinese business emerging from the quarantine period was faced with at least one of the 5Rs and these have to be resolved before any thought was given to business recovery. How they were resolved is what businesses must learn from China.

(Chongyang Institute for Financial Studies at Renmin University of China also contributed to this article.)

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