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As China ploughs through one of its most trying times, firms must brace themselves

It is Sunday evening in Xujiahui, one of Shanghai’s busiest shopping districts – that is, until the Wuhan virus hit.

Big-name brand shops are shuttered, and the streets completely emptied out, save for other stragglers like myself. Where the pavements once thronged with crowds so dense there was hardly any breathing space, sleeping stray dogs now lay claim to the wide, deserted strips of concrete.

The quiet is unfamiliar and uneasy. Such a setting would not look a hair out of place in the post-apocalyptic television series The Walking Dead, except it is real.

I remember what I am in town for, and hurry to the supermarket. Many of the shelves are already bare, stripped of fresh fruits, vegetables, meat, and instant noodles. Needless to say, face masks, hand sanitisers, and household cleaning products have been wiped out as well.

I grab whatever is left, and quickly make my way home. Even the drive back was brisk, taking just five minutes, instead of the usual 20. After all, I didn’t have to zip through an army of delivery bikes just to get into my estate, now that fewer people trust the delivery riders (or anyone, for that matter) to bring them their food.

The contagion of fear

That people are so afraid of coming into contact with others they don’t even want to order food into their homes could spell a blow for China, home to the world’s largest online food delivery market.

And it is just one aspect of the economy that shows how China is at a standstill.

It has been this way for weeks now, since the country on December 31 first reported the outbreak of the new coronavirus in the city of Wuhan, involving 27 cases. This figure has rocketed to over 17,200 as at Sunday, with a death toll of 361, surpassing the numbers from the 2003 SARS outbreak. Many countries elsewhere, including Singapore, have also been affected.

For many in China, what started out as the annual Spring Festival holiday – a time of joyous homecoming and reunion for families – has turned into a shutdown filled with fear and panic.

Cities such as Wuhan and Wenzhou have been placed in lockdown. In Shanghai, the local government has made it mandatory for all companies to suspend operations until at least February 9, with the exception of those in critical services.

People are sticking so closely to the “stay-at-home” directive that some US$393 billion have been wiped off the Shanghai Composite Index after it reopened on Monday (Feb 3), to its worst daily performance in four years.

Keep calm and carry on

Without a doubt, the damage will come to businesses, especially small and medium-sized enterprises (SMEs).

Retail was clearly one of the first to be hit. Just look at Xujiahui and the ghost town it has become. Apple has shut down all of its official stores across the mainland, joining Starbucks and MacDonald’s, which have rolled out similar measures.

We at IJK Capital continue to keep ourselves busy since our business operates across borders. Our colleagues in Europe are still working, and so us too with them – though strictly within the confines of our homes.

The move is necessary, but it still represents opportunity cost, and many, many stress factors.

One Shanghai-based colleague who went to the United Kingdom over the Lunar New Year holiday has been stuck there, unable to return after British Airways cancelled all flights to the mainland. Colleagues in Singapore who were due to arrive in Shanghai for work have had their trip postponed, indefinitely.

Meanwhile, I have to make sure I am back in Singapore by February 25 in order to make it in time for a conference we are sponsoring in mid-March, because there is the mandatory two-week quarantine to go through.

And if the coronavirus situation does not take a turn for the better, it could take a toll on the attendance of our annual Asia Investment Conference in Singapore come May.

It is a hard truth to face up to, but the business outlook is gloomy.

What happens if the Shanghai government prolongs the “holiday break” beyond February 9? Do businesses like ours still have to pay rent for our office premises and other monthly obligations? Does it mean we pay our employees less?

Late last year, one of our portfolio companies closed a multi-million deal with a Wuhan-based automobile manufacturer. We were lucky to have delivered on the goods and services on our part before Christmas, collecting most of our due payment.

But the manufacturing firm has stopped production until further notice. What this means is it is likely to come under a lot of pressure in terms of sales and cash flow, that could, in turn, affect our client. Put simply, businesses in China are really standing on wobbly ground.

We’ve seen our business partners and other fellow entrepreneurs in China split into two camps. In the first camp are companies that refuse to risk or compromise health and safety, and have no qualms taking a hit – they would rather go broke than die. One firm, for example, has postponed the opening of its new office to the end of February, with the possibility of delaying it even further.

Those in the second camp, on the other hand, would rather die than go broke. Some have encouraged employees to clear their leave during this period, while negotiating discounts on rent with their landlords. Every little cost counts.

It is hard to say which is right or wrong. All businesses need to survive.

The hope is that the Chinese government will come up with measures to relieve the pain for SMEs, be it through tax cuts or subsidies. We’ve already seen how the central bank has pumped 1.2 trillion yuan into financial markets on Monday to shore up liquidity in the stock markets.

For now, businesses can only be cautious, and do the right thing: contain the virus, stop the spread, and steel themselves for what lies ahead.


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