China Blog Update – 4/13/20
(This is an update of our March 9, 2020 China Blog)
Bill Edwards, CEO of Edwards Global Services, Inc. (EGS), has been doing business in China for 37 years, starting with living in China from late 1982 through mid 1985. He has been the Master Franchisee for a U.S. franchise in China. EGS opened an office in Beijing in 2014 and we are currently helping four U.S. brands enter the Mainland China market. Our U.S. Clients are all consumer-faced franchise brands.
Needless to say, things right now are different than ever before. The following are extracts from a variety of information sources and our network inside China on consumer-focused issues post the Wuhan Event. This is bipartisan and does not reflect a point of view.
Employment
“The official urban unemployment rate of 6.2 per cent in February understates the true level of joblessness and doesn’t include China’s 280m migrant worker population, many of whom haven’t returned to work yet. Close to 500,000 small and medium-sized businesses, the heart of the economy, which were sidelined politically before the crisis, are reported to have failed in the first quarter alone., Financial Times, April 10, 2020
Consumers Trends
Burger King, Dairy Queen, KFC, McDonalds and Starbucks closed over 7,500 restaurants in China by the end of February. Today, over 90% of these restaurants are back open.
Our company’s Managing Director for Greater China based in China says, “the businesses of China have recovered about 60-90% depending on the region. We are still required to wear face masks everywhere and practice social distancing (which is not common in a densely-populated country). Domestic travel is still difficult because place to place travelers have to be quarantined back and forth. Retail, fitness and F&B businesses will need 3-6 months to return to normal levels as people still prefer to eat at home and order in as they did for more than 40 days in February and March. Schools and universities will not start up again until September for the new school year.
“Shopping malls and stores in China have quickly reopened as the government promotes a return to business as usual, only to see consumers stay home and keep their purse strings tight or shop online. Customer traffic is ‘less than half of usual levels’ said a worker at a Walmart store in a Shanghai suburb late last month. The government has in recent weeks highlighted a brisk recovery in business activity, touting efforts to contain the new coronavirus. Shopping centres and restaurants that had closed to stem the outbreak’s spread have rushed to reopen. About 80 per cent of restaurants and more than 90 per cent of commercial facilities have resumed business across China, according to the Ministry of Commerce. But consumers, increasingly wary of government pronouncements and state media, do not feel safe going about their business as usual” Extracts from an article by the Financial Times on April 11, 2020
Life does go on. Yum China Holdings, Inc.‘s newly-acquired controlling interest in the casual-dining brand Huang Ji Huang group, a simmer pot concept, and emerging fast-food restaurant San Fen Bao, to its portfolio. Founded in 2004 and headquartered in Beijing, Huang Ji Huang has over 640 restaurants in China and internationally. Following the acquisition, Yum China will establish a ‘Chinese dining business unit’ comprising three core Chinese dining brands: Little Sheep, East Dawning, and Huang Ji Huang. “Global Franchise’, April 8, 2020
Good news for Chinese small businesses. “Insurance companies in China are taking on an unusual mission: They are promising to cover business losses from the coronavirus pandemic, as hundreds of millions of people return to work, and the country tries to rev up its economic engine. Since February, dozens of Chinese property-and-casualty insurers have rolled out new policies or expanded existing ones to provide compensation when workers contract Covid-19, the respiratory disease caused by the new coronavirus. The insurance payouts would help companies that are forced to close temporarily if staffers fall sick, other employees have to be quarantined and business activities are disrupted. Some of the policies are provided free-of-charge by insurers, while others have low premiums that are subsidized by local governments. Many sellers of coronavirus-related coverage are state-owned insurers, which can likely fall back on state support in the event of major losses.” Wall Street Journal, April 10, 2020
Most Chinese factories are now back to operating at around 80% of capacity. Some are pushing 100%. Foxconn, the Taiwanese contract manufacturer which assembles the majority of Apple’s iPhones in China, says that with the help of tests for the virus and chest x-rays it has been able to get all its operations on the mainland back up and running with no risk to the health of its workers. In a call to investors on April 1st it reported that it was on target to provide Apple with all the 5g iPhones it needs for the launch of the device this autumn. Many of the measures that made China’s great reopening possible were boring-but-important changes to existing protocols; more hygiene measures, more separation between workers, and screening (companies in China and elsewhere are trying to get their hands on a lot of tests for sars-cov-2 infection). The Economist, April 8, 2020
“Chinese consumers are shopping again, in a timely boost for the beleaguered economy, as they regain some semblance of normal life after unprecedented lockdowns aimed at containing the coronavirus pandemic. Demand for travel, cosmetics, outdoor gear and food has surged in recent weeks as policy-driven stimulus kicked in, workers returned to offices and factories and the government started easing restrictions on people’s movement. Transport bookings rose more than 50 per cent, while hotel reservations increased by 60 per cent during the three-day tomb-sweeping Ching Ming Festival through April 6, according to Trip.com Group. Online retail orders have likewise boomed, according to e-commerce site Pinduoduo. South China Morning Post, April 8, 2020
Savills China Retail believes that China’s retail sector will fully recover by the second half of the year, once as the country has recouped from the COVID-19 pandemic, reported Retail News Asia. Entertainment centres, shopping malls, restaurants, and gyms that were affected by the government-mandated lockdown in late January are predicted to flourish post-coronavirus, as consumers cautiously retreat back to their old shopping habits. At present, shopping malls in Shanghai have 30 percent fewer shoppers compared to before the outbreak. However, starting today, malls will return to their regular operating hours, from 10 AM to 10 PM, and most retail tenants will reopen to the public. Since the reopening, some sources have already revealed long queues outside fashion stores in IAPM mall, as well as difficulty in finding parking slots and seats at coffee shops. Even though some restaurants have permanently closed due to the unaffordability of labour and rent costs during the outbreak, those who did survive were allowed to reopen as soon as they have reapplied.: Source: Property Guru Report, early April.
Car Sales
(Car) “quarterly sales declined 42% on year to 3.7 million vehicles, the government-backed China Association of Automobile Manufacturers said Friday. While demand started to return in March as China’s epidemic situation stabilized, sales for that month were still down 43% on year at 1.4 million vehicles. Sales had plunged 79% in February.
The rebound is already struggling to sustain its momentum. The increase in visits to dealerships trailed off in April, said Lin Huaibin, an analyst at IHS Markit, as Chinese consumers—their confidence still fragile—watched the virus ravaging the U.S. and Europe and realized the scale of the crisis facing the global economy. This fresh “demand shock” would cause auto sales to fall by about 14% this month from the same period a year earlier, Mr. Lin said, compared with a very weak April 2019, when sales fell 15% on year.
Government and Landlord Support
Just in from Deloitte: The Chinese central government has unveiled a raft of measures to support the market amid the novel coronavirus pneumonia outbreak. The support plan for SME’s mainly includes:
- Easing tax burden: on individuals and corporations
- Financial support: increase credit supply, reduce difficulty and cost of loan applications
- Stability of employment: delay collection of social insurance premium.
Also, property developers/landlords, including Wanda Group, China Resources, Poly Group, Country Garden, etc. have announced waiving rent for tenants for 1-2 month durations.
Travel
“United UAL Airlines could announce it will soon resume passenger flights to China, which is rebounding after strong measures brought the coronavirus outbreak under control. United would likely fly between San Francisco and Shanghai Pudong. Demand is increasing for United as business resumes in China and its U.S. corporate customers re-establish supply chains.” Forbes, April 10, 2020
But….” Hotel stay in Beijing only with negative corona test from April 12. In order to stay in a hotel in Beijing from April 12, guests will have to provide a negative result of a nucleic acid test that was taken within the last 7 days as well as national or Beijing health codes that show no abnormal status. China Legal Services, April 10, 2020
In Summary
We keep our thumb on pulse of the Chinese business market, monitoring daily changes and trends, and have insight on how you can protect and grow your brand in this critical market. We will update this China blog about every other week.
Feel free to reach out to Bill Edwards, CEO of Edwards Global Services, Inc., (EGS) to ask questions or share best practices at +1 949 375 1896 or bedwards@edwardsglobal.com.
“It is not the strongest or the most intelligent who will survive but those who can best manage change”. Darwin
Our World’s Update – Monday, March 30th, 2020
We are monitoring 22 countries, 25 daily international information sources and six business sectors to keep up with what is going on in this ever-changing environment. Based on decades of international business experience, we believe it is critical to remember two famous British sayings:
“Keep Calm and Carry On”
“Keep Calm and Breathe Deeply”
A month ago, I gave a talk to a local California business group on what life was like in a locked down China. I sited the quarantine at home for over 40 days of our Beijing based managing director and his family. His 8-year-old daughter was kept inside for these 40+ days and was going to her international school online.
This event has changed how Chinese view working from home, as they did not see this as viable before. The result of millions going to offices, is a huge number of high-rise office buildings in big cities. However, now remote work is looking good. My daughter in Cincinnati has been trying to get her company to let her work from home for years. As of today, she has been told it is mandatory to work from home through April.
By the way, our Beijing managing director’s daughter will be back at school with her friends in April. Meanwhile, my 9-year-old granddaughter in Cincinnati is just beginning her own online education from her home.
Never have we seen a disruption like the one caused by Coronavirus in our history. As of this today, “OpenTable bookings at restaurants worldwide are down by over 80% from a month ago. Retail footfall is down 50-80%, depending on the country”, Financial Times, March 22, 2020. Other franchises where customers gather like gyms are 60-100% shut down. Burger King, Dairy Queen, KFC, McDonalds and Starbucks closed over 7,500 restaurants in China last month. Today. 90% of these restaurants are back open.
Our U.S. restaurant clients have closed almost all their units worldwide – expect for China and Korea soon as well. Our clients are almost all going to remote working, clearing out their large offices around the U.S. They have also put into place a no ‘over water’ travel policy for the next three months. We are lucky that our company has been virtual for years. Not just the six of us in the U.S. working remotely, but also the 30+ members of our team on the ground around the world.
One of the groups we are working with to become the Italy licensee for one of our U.S. restaurant brand clients, owns and operates almost 100 restaurants in Northern Italy. They are 100% shutdown with hundreds of employees impacted.
As a Diamond Medallion frequent flyer with 2.5 million miles on Delta, it was interesting to read that Delta Air Lines will emerge as a “smaller” carrier, following the Coronavirus crisis, warns chief financial officer Paul Jacobson, as the airline prepares to wind down the majority of its schedule by April. “We’re going to be smaller coming out of this,” he told employees during an internal webinar last week.
Rod Young, global chairman of Cartridge World and chairman of Sydney-based DC Strategy Group, said “the wild card in looking forward for the Asia Pacific region is the Coronavirus pandemic and this is written in the expectation that the response by China and the rest of the world will see the community and the economy recover some normality after a significant impact on global growth and consumer habits.”
Our company’s associate for Southeast Asia, Sean Ngo, CEO and co-founder of VF Franchise Consulting, Ho Chi Minh City, says “people in Asia took the Coronavirus issue much more seriously earlier than in the West, because of their SARs experience in 2003 and the region is expected to gradually recover in the next – three to six months. Countries in Southeast Asia closed all international flights, while only allowing for domestic travel. The main concern in countries like Vietnam, Singapore, Thailand and the Philippines is about the virus sneaking back into these countries from international visitors.”
An AmCham China webinar from Beijing late last week had the top China-based executives of four international companies explaining how they handled the coronavirus shutdown starting in late February. They said their order of priorities were: (1) their people; (2) their internal business; (3) their suppliers; and (4) their relationships with government regulators. Wisdom for us all in these times.
This immense disruption has slowed down new business development around the world. But it is also causing companies to evaluate their businesses, in order to fine tune operations and systems and better prepare for a brighter and stronger future.
Contact me directly at bedwards@edwardsglobal.com to learn how to protect and grow your brand in the current business climate.
The Coronavirus Impact on Doing Business in China Today – March 9, 2020
This blog is an update on the blog originally posted on February 26, 2020.
Bill Edwards, CEO of Edwards Global Services, Inc. (EGS), has been doing business in China for 37 years, starting with living in China from late 1982 through mid 1985. Our company opened an office in Beijing in 2014 and we are currently helping four U.S. brands enter the Mainland China market. Needless to say, things right now are different than ever before.
As of February 20th, all flights from the US to China and most to Hong Kong were stopped and are expected to restart until at least May. Face to face business meetings stopped in February and have mot restarted as of the date of this blog. The Chinese are learning to work remotely.
Here are some recent headlines and articles that define what is going on in China as of this date:
The Chinese government is strongly encouraging businesses to start back up in Guangzhou and Shanghai. The quarantine restriction has also been loosened on these cities. But not as much in Beijing, where the central government is headquartered.
The U.S. Faegre Drinker law firm has a China office and sent out an email on March 6th that states ‘Most employers in China are slowly getting back to somewhat normal operations, with most employees gradually returning to offices and factories. There are several things that employers should know to maximize the speed with which they can return to normal operations and continue to work in the time of the coronavirus.” This timely information is at this link:
http://bit.ly/BacktoworkinChina
The CEO of a California company with two high tech factories in Eastern China says his staff both facilities are open again and staff is gradually coming back but have to go through a 14-day quarantine period before they can work.
The business volume index of China Logistics Prosperity Index (LPI) came in at 26.2 in February, down from 49.9 in January. Fung Business Intelligence 030420
“The Caixin/Markit services purchasing managers’ index (PMI) fell over 25 index points to 26.5 in February from 51.8 in January, with the figure adjusted for seasonal factors, including the Lunar New Year. The latest figure, the first reduction in business activity across China’s service sector since the survey began in November 2005, followed the larger-than-expected deterioration in the official and private sector manufacturing sector PMIs to all-time lows in February.” South China Morning Post (SCMP) 030420
“The value of China’s exports for January and February fell 17.2 per cent from the equivalent period of 2019 to US$292.45 billion, as virus-related production bottlenecks and the extended holiday reduced output. Imports, however, fell by only 4 per cent to US$299.54 billion, due in part to a spike in shipments of food and medical supplies.” South China Morning Post (SCMP) 030720
Manufacturing activity in China sunk in February to its lowest level since managers were first surveyed in 2004. Wall Street Journal. 030720
“Exports to the United States plunged 27.7% in January and February to $43 billion, worsening from December’s 12.5% decline. Imports of American goods crept up 2.5% to $17.6 billion, but China still recorded a $25.4 billion trade surplus with the United States. China’s global trade balance fell to a $7.1 billion deficit for the first two months of the year.” ABC News 030720
“China’s top eight ports, including Shenzhen and Shanghai, reported a nearly 20 per cent drop in container traffic in February from a year earlier, The eight ports account for over half of China’s trade in containers, suggesting that China’s trade last month also shrank by a fifth. SCMP 030520
“Starbucks® said the virus had reduced revenue expectations in its second-biggest market by at least $400 million for its current quarter. They expect same-store sales to drop 50% in its second quarter in China, as opposed to the 3% growth previously expected.” Wall Street Journal 030520
It appears that the majority of Burger King®, Dairy Queen®, KFC, McDonald’s® and Starbucks® stores in China have reopened except in Hubei province (Wuhan),
We daily keep our thumb on pulse of the Chinese business market, monitoring daily changes and trends, and have insight on how you can protect and grow your brand in this critical market. Contact Bill Edwards directly at bedwards@edwardsglobal.com or on +1 949 224 3896
An Update on the Coronavirus Impact on Doing Business in China Today
Bill Edwards, CEO of EGS, has been doing business in China for 37 years, starting with living in China from late 1982 through mid 1985. Our company opened an office in Beijing in 2014. Our company is currently helping four U.S. brand enter the Mainland China market. Needless to say, things right now are different than ever before
Here are some recent headlines and analysis that define what is going on in China today:
As of this date, all flights from the US to China and most to Hong Kong have stopped. Business meetings stopped 2+ weeks ago. The Chinese are learning to work remotely.
“China Passenger Car Association said sales fell to just 4,909 units in the first 16 days of February, from 59,930 in the same period in 2019”, South China Morning Post (SCMP), 022120
“China app downloads surge due to coronavirus outbreak Deadly epidemic has left tens of millions of people confined to their homes”, Financial Times 021920
“Coronavirus a boon for China’s tech-savvy supermarkets as homebound customers switch to online grocery orders”, SCMP 022120
Burger King®, Dairy Queen®, KFC, McDonald’s® and Starbucks® closed a total of over 7,500 stores in China in late January or early February.
“McDonald’s has implemented contactless pickup and delivery of Big Macs, fries and other menu items across the China. Customers order remotely and employees seal the meals in bags and put them in a special spot for pickup without human contact.” Reuters 021820
Some feedback from business contacts in China:
“We have been inside our Beijing home for over a month. Only one adult is allowed out every other day. Our temperature is checked by a guard on the way our and on the way back in. Our 8-year-old daughter has not been to school in a month and we have run out of videos for her. Our local grocery store now comes to our housing compound.”, Our company’s Managing Director for Greater China based in Beijing.
“Thanks so much for the nice email and your concerns, Bill. The Coronavirus has essentially stopped inbound/outbound movement and that’s not good for business. All of our staff are doing fine and no one so far has been affected. Many of us try to work remotely as much as possible and avoid crowds, subways, and restaurants.” Message from the Managing Partner of a Shanghai legal firm. 022220
But things are starting to change:
“China’s biggest factories are offering bonuses and the government has laid on planes, trains and buses to ferry people back to work.” Financial Times 022520
“Apple reopens more than half its retail stores in China after coronavirus closures. Apple’s store website shows 29 of 42 locations are opening”. SCMP 022520
With over 37 years of experience of doing business in China, I’m happy to discuss these business ramifications and solutions. I keep my thumb on pulse of the Chinese business market, monitoring daily changes and trends, and have insight on how you can protect and grow your brand in this critical market. Contact me directly at bedwards@edwardsglobal.com or on +1 949 375 1896
Traveling On Business In China And The Great China Firewall
What do Dropbox, Southwest Airlines, Box.com, Google, Facebook, LinkedIn, Gmail and the New York Times have in common?
Their websites are all blocked in Mainland China. This means no Google mail and no access to cloud based files for many of the standard sources we in the West use today. However, WeTransfer seems to work fine for file transfer. Microsoft Outlook also works, most of the time.
No google.com, but yahoo.com is available. Southwest Airlines? Who knew they were a problem? In Hong Kong and Taiwan none of these websites are blocked.
Often before a Western website will fully load there is a delay as the Great China Firewall decides if the content is forbidden. If there has been an article that is negative to China you can also expect ‘The Economist’, the ‘Wall Street Journal’ and ‘Financial Times’ websites to be blocked. Usually this is only for a few days.
I have just returned from two weeks in Taipei, Shanghai, Wuhan, Chengdu and Hong Kong on business for three of the US franchises that our company represents around the world.
The good news is that high speed bandwidth Internet is available in major cities in Mainland China. And there is typically no charge for Internet at the major hotel chains. That is not the case in the USA where several large hotel chains still charge high prices for Internet access. And in the USA the bandwidth at such hotels can be ‘iffy’.
The Great China Firewall is alive and prospering. But manageable.
