Some businesses win, some lose in virus epidemic
February 18, 2020 Category Health, Weekly
As the fights against the Covid-19 epidemic continues in China and the virus also affects the rest of the world, many businesses suffer the negative impacts of factory and restaurant closures, but some other companies succeed in taking advantage of a dire situation. Who are the winners and losers?
The stock markets seem not to be affected that much. In China there was a sudden drop when the markets reopened after the Chinese New Year holiday, but the losses were wiped out at the prospect of a vigorous economic recovery after the virus is defeated. Nevertheless, as Apple announced on February 17 that iPhone supplies could drop, world stock markets reacted. Many migrant workers who assemble Apple products in the gigantic factories of Foxconn, have either not yet returned or are facing a 14-day mandatory quarantine. Foxconn has also started producing face masks in an effort to try to avoid its workers getting infected and possibly forcing factory closures.
As people are cocooned at home and avoiding contacts as much as possible, the biggest losers are hotels, restaurants, tourist businesses and the airline companies. In some cities in China, including in Guangzhou, eating out in restaurants is prohibited. Many have closed outright, while some are focussing on preparing meals for home delivery. Restaurants in Hong Kong are separating groups of customers with physical barriers in an attempt to minimize the risk of infection and boost consumer confidence. Roll-up separators and acrylic panels have been installed between tables – and even between people eating out together. Dr Joseph Tsang, an infectious diseases specialist in Hong Kong, said that if people choose to eat together they should keep their distance, not sit facing each other, and even avoid talking.
Many hotels in China have closed due to a lack of customers. The hotel closure rate nationwide is more than 80%, and the occupancy rates of most open hotels are just over 10%, an industry insider said. David Ding, General Manager of Crowne Plaza Beijing Sun Palace under the InterContinental Hotels Group, told the Global Times that the occupancy rate is about 7%, which is typical for international hotels at present. “Now the Beijing government doesn’t allow more than three people to eat together, so we shut down the hotel restaurant,” he added. About 150 Hilton-operated hotels in the greater China region are currently not accepting new guests, though existing guests will not be affected.
The coronavirus outbreak could cost the global tourism industry about USD80 billion in lost revenue, and the sector is unlikely to recover for at least one year, as millions of Chinese are canceling travel arrangements and postponing holiday travel. Online travel companies like Expedia and Tripadvisor are forecasting a drop in revenues.
Airline companies are also hard hit. On February 10, for some employees the first working day after the extended holiday, 11,485 domestic flights were canceled out of about 15,000 planned flights operated by Chinese mainland airlines, according to VariFlight. On February 5, 70% of domestic flights were canceled. On February 8, domestic flights transported 270,000 people, down 84.6% year-on-year. During the SARS epidemic, the aviation sector in China lost CNY2.8 billion for the whole year, as about one-fifth of aircraft stopped flying daily on average. This time, the loss will be even greater, because the epidemic affected the top Spring Festival travel period. China now operates more than 3,800 aircraft, five times more than in 2003. Many small- and medium-sized airlines are struggling to survive amid a cash crunch. Singapore Airlines has followed Cathay Pacific in reducing the number of flights across its network.
Recruitment site Zhaopin said last week that around 10% of firms they surveyed were “on the verge of death”, with around 30% planning job cuts and another 30% saying they could not pay their employees on time.
Winners include – predictably – producers of medical supplies, protective clothing and antiviral drugs. Shenzhen Mindray Bio-Medical Electronics, China’s largest hospital devices maker, could see a doubling in revenue from Hubei province this quarter from a year earlier, analysts at Huatai Securities estimated. Despite ramping up production, manufacturers of face masks cannot keep up with demand. New regulations include the requirement that people in China showing up in public must wear a face mask. Access to public transport such as busses and metros is prohibited to those without a face mask. Medical workers – who must change their mask and protective clothing several times a day – are still coping with a shortage.
Chinese mask makers are currently operating at about 76% capacity, which puts daily production at 15.2 million masks based on the industry’s capacity to produce 20 million pieces a day. Daily demand, however, is estimated to be between 50 and 60 million units during the outbreak, according to Chinese media reports citing mainland mask manufacturers. China has also only been able to make 200,000 N95 respirators per day because they require more sophisticated technology and materials to produce.
App developers are busy providing digital tools to cope with the epidemic. Little Red Book and Small Kitchen help to find recipes to cook at home. Data from app tracker Analysys Qianfan showed that during the Spring Festival holiday, daily active users (DAU) of Little Kitchen surged 27.3% from 2.09 million to 2.66 million. Similar platforms such as Douguo and Xiangha also saw their DAUs increase during the same period. Online fitness platforms also witnessed spikes in user volume. DAUs of Keep, an internet-based workout provider, increased during the enforced holiday, when many didn’t even dare to venture outside for a walk. Ring Fit Adventure, which assists in workouts, developed by Japan’s Nintendo, sold surprisingly well. The small gadget, priced between CNY1,300 and CNY3,798 on Alibaba’s online shopping platform Taobao, saw average monthly sales of over 2,000 units on the platform. On February 6, the Japanese company apologized for delayed shipments, amid huge demand from Chinese consumers.
Xiaomi Founder Lei Jun, born in Hubei province and having attended university in Wuhan, the epicenter of the Covid-19 outbreak, became the first to launch a new product using a live-streamed video conference. He presented Xiaomi’s new smartphone, the Mi 10 5G. Sales forecasts for mobile phones have been cut due to the closure of factories and shops. Canalys and Strategy Analytics expect global shipments to drop 50% in the first quarter from a year ago, while IDC sees a 30% slide. The proportion of online sales is expected to rise sharply in the first quarter. IDC forecasts that China’s smartphone market will contract 4% in 2020.
The semiconductor industry is trying to carry on. Wuhan is an important center of the semiconductor industry, with more than 100 chip design, manufacturing, packaging and testing companies. Production lines at Wuhan Xinxin Semiconductor Manufacturing Co. (XMC) have been kept running 24 hours a day during the extended Chinese New Year holiday. The ultra-clean environment required for semiconductor production makes transmission of the virus less likely. However, chip makers are not completely immune from the disruptions. The shortage of manpower and raw materials, the evacuation of foreign engineers from Wuhan, and transport restrictions are all challenges facing semiconductor companies in the city. The suspension of U.S.-China flights by major US airlines could seriously impact deliveries of finished chip products to U.S. customers.
This summary is based on reports by the China Daily, Shanghai Daily, Global Times, South China Morning Post and The Guardian.
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