Opportunity in Adversity As a balancing act starts to revive the economy, industry insiders foresee new trends
The ongoing novel coronavirus epidemic seemed to have pressed a pause button to the movement of most people over the past few weeks. According to Cong Liang, Secretary General of the National Development and Reform Commission (NDRC), apart from Hubei Province, the hardest-hit place, other provincial-level regions are heading back to work. Enterprises in key areas including medical materials manufacturing, energy, grain, transportation and logistics have reopened,”
Picking up the pieces
Companies providing epidemic control supplies and services such as medical materials and daily necessities were among the first to resume work. They are racing toward full production.
On February 8, four production lines for acrylonitrile, an organic compound used in surgical masks, gloves and protective suits, were in full swing at a Sierbang Petrochemical Co. factory in Lianyungang, Jiangsu Province in east China.
“We made a rational production plan during the holiday and have enough people and materials for production,” Bai Wei, General Manager of Sierbang, said, adding that 1,500 employees had resumed work.
In the first 10 days of February, the company produced more than 25,000 tons of acrylonitrile and other products, alleviating the shortage of raw materials for medical supplies.
Domestic medical mask production capacity had rebounded to nearly 87 percent by February 7, Chen Da, an NDRC official, said. Nearly 95 percent of major grain production and processing companies had resumed production and there was sufficient supply of natural gas, electricity and refined oil, Chen added.
Logistics companies were expected to reach over 40 percent of their normal
handling capacity by mid-february, according to the State Post Bureau.
In other sectors, enterprises have altered their methods of work and recommenced production in a phased manner. Daily and large-scale disinfection and health checks have become normal in public areas and enterprises. Telecommuting and working in shifts are popular ways to reduce face-to-face contact. People who returned from outside their cities stayed at home for 14 days, the incubation period for the virus, working remotely. Those who had stayed in their cities reported for onsite shift duty. Public service organs and companies are working online, with approval and assignment allocation done by e-mail or phone. Where commuting and onsite work are necessary, employees are encouraged to take private cars.
But difficulties do exist. “Manufacturers have delayed their return to work, which has led to a slump in the demand for our products. Moreover, logistics constraints have also affected the transportation of our materials and products,” said Bai.
To cope with the logistics problem, he rented storage tanks to ease the burden on the warehouse, and adjusted the product structure.
Overcoming obstacles
Most companies face similar challenges. The mobility constraint has raised the cost of labor. Together with limited transportation, costs are rising, said Sang Baichuan, Dean of the Institute of International Economy at the University of International Business and Economics in Beijing. Investment, supporting service facilities and supply chains have also been affected. Some foreign countries are likely to reconsider their imports from China and may restrict Chinese visitors, which will impact trade and lead to reduced orders, while some orders may not be finished in time due to the restricted supply chain, he added.
“Shrinking orders and unfinished transactions can have a significant impact on the liquidity of companies, especially small and medium-sized enterprises (SMES),” Sang said.
A recent survey of 995 SMES by Tsinghua University and Peking University found 70 percent of the respondents can survive two months at most with their current cash flow. Less than 10 percent said they could continue for half a year.
Apart from SMES, catering, retail and tourism have also suffered. Jia Guolong, founder of Xibei, a top restaurant chain, said in an interview with Chinaventure. com.cn on February 1 that the company had been forced to close more than 400 of its restaurants nationwide. Only 100 were open for delivery services.
On February 6, Xibei signed a 530-million-yuan ($76-million) credit agreement with the Beijing branch of Shanghai Pudong Development Bank. The first loan worth 130-million yuan ($18.7 million) has already been issued.
The central authorities and local governments have already swung into action to cushion the epidemic’s impact on companies, especially SMES. As of February 7, 13 provincial-level regions and a number of lower-level governments had issued policies to support SMES with measures such as the waiving of rent on a temporary basis, tax cuts and deferrals, credit support and subsidies, according to an Economic Daily report. Meanwhile, more policies are afoot.
The NDRC has allowed SMES to maintain liquidity by issuing bonds. The capital raised via corporate bonds can be used to pay back project loans.
Giant real estate players such as Wanda, the R&F Group and the China Resources Group have announced that they will waive the rent for their commercial tenants by half to one month despite facing liquidity pressure themselves.
Hema Fresh, Alibaba’s New Retail grocery chain with online and offline retail services, has offered to share employees to help workers who have been let go by distressed companies. With online orders for groceries mounting as people prefer to stay at home, Hema Fresh has a labor shortage. So the retailer is borrowing idle employees from catering companies to fill the gap temporarily. As of February 10, more than 1,800 employees from 32 catering companies, including Xibei, had joined Hema Fresh’s temporary sharing plan.
Planning for the future
While battling the current situation, enterprises need to make plans for the future to make up the losses. Sang said some challenges are temporary as consumption will see a fast rebound after the effect of the epidemic wears off.
Xu Hongcai, Deputy Director of the Economic Policy Commission, China Association of Policy Science, told Chinafrica that changes will take place in people’s lifestyle after the epidemic as they pay more attention to their health, which will also bring about new opportunities in business.
“From a long-term perspective, the outbreak will see a comprehensive reconstruction of the business ecosystem of the country, companies, industries and the people as a whole, the impact of which will last a long time,” said Li Jiangtao, a postdoctoral research fellow with the Institute of Economics, Tsinghua University.
In 2003, the severe acute respiratory syndrome outbreak became a catalyst for Internet industries. In the age of 5G, the epidemic may alter business models, consumption and purchasing habits in a revolutionary manner, Li added. He suggested SMES pay more attention to social change since this marks an opportunity to reshape their companies and industries. “I’m confident that new business models will emerge,” he said.
Sang also advised companies and public service systems to introduce and strengthen the use of artificial intelligence and automation in their production and services. CA
We made a rational production plan during the holiday and have enough people and materials for production. BAI WEI General Manager of Sierbang Petrochemical Co. Ltd.