Tentative signs of recovery in China help firms weather COVID-19 storm
One night in late January, Canadian Jacob Cooke found himself in Jiangsu province in China, desperately trying to find seats on a plane leaving the country and promising his brother, Joseph, he’d make it to Vancouver.
For more than a decade, they had run a business called WPIC Marketing + Technologies with an ocean between them, helping brands from Canada and, eventually, all over the globe launch e-commerce operations in China.
But that night, panic was washing over China after news channels started reporting on the highly contagious outbreak of the novel coronavirus in Wuhan province.
There was little information about who was most vulnerable, how the virus spreads or what symptoms to expect, but fears were aroused. Soon, trains were shutting down, hotels were closing their doors and, slowly but surely, ways out of the country were disappearing.
“There was definitely not enough information,” Jacob said.
“You didn’t know what to believe, you just wanted to get far enough away from it.”
Jacob also worried about his family, including his wife and their two young sons, aged five and nine, who had travelled from their home in Beijing to visit her family in Jiangsu for Chinese New Year, since it looked like they might be stuck there. After spending hours on the phone, he secured seats on a plane leaving Shanghai for Vancouver, and then tracked down a driver to make the six-hour trek to the airport.
Seven weeks later, after Jacob and his family made it safely back to Vancouver, the situation has in many ways reversed: Canada, and most of the western world, are desperately trying to stop the spread of coronavirus, with new measures being announced almost on an hourly basis that shut down parts of the economy, while China is in recovery.
It’s still not clear how the deadly virus will be contained, or what its ultimate toll will be, so the horizon in Canada and elsewhere remains too dark to look for silver linings.
Yet if the worst does not come to pass, the Cooke brothers and others who hold deep business ties to China can see how the global connectivity of our economies may help both countries.
An economic recovery is now taking shape in China. Self-isolation is starting to end, people are returning to offices and work in factories has largely resumed its pre-coronavirus level of activity.
FedEx Corp. on a March 17 conference call said 90 to 95 per cent of large manufacturers in China are now open, as are about twothirds of small manufacturers.
The Hang Seng Index in Hong Kong and Shanghai SE Composite Index both ended the week on a positive swing after brutal declines since the start of the year.
But as supply chains and demand for goods ramps up in China, they’re slowing elsewhere. Yet there were signs of life even in the depths of China’s outbreak.
Joseph Cooke, president of WPIC, said it’s been a strange year in China. Online sales usually dip during the new year celebration, but they remained steady this year, perhaps because people in self-isolation indulged in “retail therapy,” he said.
As the weeks in lockdown progressed, online sales in China accelerated as brick-and-mortar retail stores stay closed.
That also provided a lifeline for many Canadian companies, particularly those that need to move seasonal inventory, WPIC chief executive Jacob Cooke said.
“China coming back online is great for Canadian companies,” he said. “With retail closed here, for example, and a lot of stuff being seasonal, it’s got to move somewhere or it’s going to become useless.”
Some companies’ quarterly earnings reports are already bearing that trend out.
For example, Nike Inc. chief executive John Donahoe reported last week that his company’s e-commerce sales in China increased more than 30 per cent during the last quarter, even as it had closed 5,000 stores in the country during most of that time.
Other parts of China’s economy appear to be returning to normal as well, offering a potential lifeline to companies from Canada and elsewhere needing to sell their goods.
“I was talking today to someone who was in Beijing and she said, ‘Here’s the thing, there was a traffic jam and I had lunch with someone, and it’s the first time I’ve had lunch with someone in weeks,” said Sarah Kutulakos, executive director of the Canada China Business Council.
She said the key to China’s resumption of regular business activity is that everyone has been “incredibly conservative about social distancing and people are taking that very seriously.”
That has benefited Canadian companies with operations in China as well.
For example, Toronto-based Neo Performance Materials Inc., which turns rare earth and rare metal-based materials into magnets and other products used in cars and high-tech devices, operates four factories in China, all of which are now operating and shipping goods again.
None of its 1,100 employees there has contracted COVID-19, but the company has said it implemented precautionary measures including temperature checks of its workers.
On a March 12 earnings call with analysts, chief executive Geoff Bedford said the supply chain is largely functional again, with his factories able to procure all the raw materials they need.
Still, it’s not all good news. China is still experiencing the repercussions from the lockdown period, including declining demand.
“We are seeing signs of slowing downstream demand from our customers, particularly for supply chains that are located within China,” Bedford said on the call.
He noted that more than 60 per cent of Neo Performance’s sales are related to the automotive industry, including vehicles manufactured for the Chinese domestic market, which is one particular area where demand is softening. But he also noted that trend was already happening the previous year.
Aurora, Ont.-based auto parts manufacturer Magna International Inc. on Thursday reported that it expects softening demand in China, though its customers there are ramping up again after extended downtime throughout February. Meanwhile, many of its customers in North America and Europe have reduced production rates or temporarily closed.
Overall auto sales in the world’s biggest vehicle market dropped 79 per cent in February, according to the China Association of Automobile Manufacturers, which does not expect demand to normalize until the third quarter.
WPIC’s Jacob Cooke said Canada’s economy is intricately linked to China’s economy, even if diplomatic spats and trade wars are decoupling the two countries on cultural and political levels.
“They are completely intertwined,” he said. “If either of those pieces go down, it just creates huge problems for the global economy.”
Jacob was in China as it entered the peak of its outbreak and now he’s back in Canada as the coronavirus takes hold here, giving him some insight into how conditions are progressing in both countries.
“This has sort of been the whole process for me,” he said.
“You’re basically experiencing it in cycles: you’re either cycling to further and further lockdowns or you’re opening up.”
Right now, Canada and the United States are still cycling to further lockdowns as the number of new cases detected continues to grow daily. But Jacob and his brother Joseph both said it only takes a bit of good news to swing momentum in the other direction.
“I’m feeling like it’s very quiet in Vancouver, and people are staying home,” said Joseph. “Let’s hope we curb the spread.”
Financial Post
China coming back online is great for (Canada). With retail closed (and) stuff being seasonal, it’s got to move somewhere.