Editor's note: Alessandro Golombiewski Teixeira is a National Thousand Talent Distinguished Professor of Public Policy at the School of Public Policy and Management, Tsinghua University, and a professor of International Business at Schwarzman College in Tsinghua. He is a former special economic adviser to the president of Brazil and a former minister of tourism as well as minister of development, industry, and foreign trade of Brazil. He was also president of the World Investment Association – WAIPA. The article reflects the author's views, and not necessarily those of CGTN.

The question on every economist's mind is how and when the global economy will recover from the COVID-19 fallout. The widespread economic impact is being felt by governments, companies, and individuals alike. In Softbank's most recent earnings presentation in May, a slide titled "Valley of Coronavirus" depicted a herd of unicorns plunging down into a deep valley before flying back up the other side into the sky. The Japanese conglomerate whose investment portfolio includes numerous unicorns – private firms with valuations exceeding one billion dollars – including ByteDance, China's most valuable unicorn, is grappling with record losses as market valuations dropped in the wake of COVID-19. 

Certainly, Softbank is counting on its firms to soar back to previous heights once the economy starts regaining balance, but whether its unicorns with their short track record really can return to growing valuations, competitiveness and innovation, is far from certain. As global reverberations of COVID-19 continue to be felt, including shrinking investment and rising political risk, it is more important than ever for Chinese unicorns to double down on their core business whilst catering to ever increasing digitization.

Dealing with shifting landscape

Investors are choosing to hold on to their cash amidst the continued strain of COVID-19 and volatile markets. The pandemic has caused China's economy to shrink for the first time in decades, declining by 6.8 percent in the first quarter of this year. Falls in global venture capital funding could wipe out 28 billion dollars in investment for start-ups: investments-fueled unicorns are finding themselves in unchartered territory. A six-month drought in venture capital could spell the end for many start-ups. Unicorns' valuations are also hit by investor fears that takeovers and Initial Public Offerings (IPO), both common ways of realizing profits from early investments, will be harder to achieve. Face recognition technology developer SenseTime and bike-share firm HelloBike have seen valuations fall 10 percent and 20 percent respectively.

Yet for well-placed unicorns in strategic industries, the pandemic has presented new opportunities for growth. The first three months of 2020 saw information transfer, software and information technologies sectors grow by 13.2 percent compared to last year, with strategic emerging sectors exceeding 15 percent of the country's GDP, according to the State Council. The strategic industries are: energy efficient and environmental technologies; next generation information technology; biotechnology; advanced equipment manufacture; new energy; new materials and new-energy vehicles. Recent economic data for Hebei Province has seen these strategic emerging industries account for a year-on-year GDP increase of 16.3 percent. The online education platform Yuanfudao was able to raise one billion dollars in March despite the global investment slowdown, pushing the unicorn's valuation to 7.8 billion dollars from three billion dollars in 2018.

Strong prospects for Chinese unicorns?

Start-ups that survive the "stress-test" of the COVID-19 pandemic could end up being strengthened as competition is wiped out. Unicorns for the large part will be able to ride out this period until investors resume pre-virus activity. Yet the days when unicorns could burn cash looking for ways to profit are no longer sustainable; instead these younger firms need to be laser focused on their competencies and cut spending.

In the next decade, successful unicorns will take advantage of rapidly changing consumer trends. A recent report by PwC found that more than half of unicorn company executives regard the emergence of new technologies as the most influential external factor facing them. China's unicorns are particularly prevalent in four industries shaped by technology: enterprise services, media and entertainment, transportation and automotive, and fintech (digital financial technology services). They are poised to reap the rewards of a reshaped post-COVID-19 economy. 

These companies that are in the sweet spot of digitization of traditional industries could be the real winners of this pandemic. Unicorn Xpeng Motors, for one, demonstrated their confidence in the Chinese electric car market by announcing in April that they will start taking pre-orders for its new smart car, which will compete with the Tesla Model 3.

Given the level of disruption that the pandemic has caused, a key lesson for unicorns is to adopt a more cautious approach to the "grow big fast" ethos of start-up culture. Firms whose business models are disrupted will need to implement crisis management measures, build resilience and adjust supply chains to navigate future ups and downs. At the more extreme end, firms may even consider realigning their business model with emerging innovation trends. Companies that successfully streamline their business to survive this challenging period will be in a stronger position on the other side. Ultimately, the challenges faced by firms during the pandemic may help China's unicorns soar higher in the long run.

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