The EU-China Business Association and the Flanders-China Chamber of Commerce in partnership with The Conference Board organized a webinar on: ‘Assessing COVID-19 Economic Impacts on China – Implications for Global Business’.

The speakers were Mr. David Hoffman, Senior Vice President Asia and Managing Director of the China Center for Economics & Business at The Conference Board, and Mr. Filip Pintelon, Senior Vice-President and General Manager Healthcare Business Group of Barco. The webinar was moderated by Ms. Gwenn Sonck, Executive Director of the Flanders-China Chamber of Commerce (FCCC) and the EU-China Business Association.

In her introduction Ms. Gwenn Sonck said that China was convinced to have Covid-19 under control, but as uncertainties remain, this year no GDP growth target was announced. This means there will be more attention to high-quality developments. Despite Covid-19 there is still much potential for growth in EU-China trade, and the investment treaty – which is under negotiation – will offer new opportunities for investment. We should think how to learn from China, as it is already an innovation leader in many areas, including the internet, artificial intelligence and Covid-19.

Mr. David Hoffman explained in his presentation that although China is recovering, the economic impacts of the Covid-19 pandemic are huge and growing, and things are not “back to normal”. In the second part of January and in February the entire economy shut down in an unprecedented supply and demand side shock. That is now followed by the collapse of export demand as economies globally struggle to contain the virus. All the main indicators plummeted in the January-February period to unprecedented lows. Production has restarted but at 70% to 80% of its norm. Demand is down 20% to 30% overall. The demand isn’t there to fill up China’s capacity. We see some recovery, but there’s still a long way to go. Unemployment rose to 6.2%, the highest rate ever. Some are excluded from these data and we estimate unemployment and underpayment affects 20% of the workforce. This matters because of the relationship between employment, household income and consumption growth. The mass market has less to spend, affecting overall consumption growth. Small, private business that don’t have the cash reserves to furlough their business for weeks, much less months, are the hardest hit. China’s exports are roughly 20% of the economy, less than before, but still a big share. Export demand depends on how Europe, the U.S. and the rest of the world is doing. The drop in export demand is going to hit China very hard. We think it will be very hard for China to get to a positive growth rate for 2020. We think it’s likely going to be zero, or negative 2% to 2.8%.

Turning to multinationals in China, Mr. Hoffman said they should expect a changed business environment. The mobility restrictions are likely to persist. In many sectors there is consolidation and the small enterprise segment is hollowed out. There are also potential upsides, including exceptionally high levels of hospitality in China. Authorities want foreign firms to do well, stay in China, and invest more. This economic shock that China is experiencing will force weak firms out of the market. We don’t think the Chinese government can afford to backstop everyone. This means strong foreign companies will gain market share. Even a smaller market could be a better market because you will be able to gain marketshare. On the U.S.-China trade war, Covid-19 accountability will worsen trade tensions, but primarily in rhetoric, not in policy. We do not believe Western governments will force their companies to stop supplying China. We believe China is not able to indigenize technology components anytime soon. Multinationals want to be close to where their markets are and where their eco-systems are for production efficiency. When you hear the word decoupling, it doesn’t mean exiting. Companies will increase their domestic supply chains in China for China, but build redundant supply chains for the rest of the world. Foreign companies will have to adapt more to local conditions, requiring a new level of adaptation if they want to succeed.

Mr. Filip Pintelon first described Barco Healthcare’s activities in China in three domains: providing radiologists with workstations in China, providing equipment to operating rooms for video distribution and robotic surgery, and thirdly activities for Chinese medical technology players. In terms of localization, the innovation cycle goes very fast in China, as many hospitals are already using AI applications developed by local entrepreneurs. So you need to mobilize the resources locally to move quickly. The people that are most responsive and most engaged will win business. Business is going back to normal quicker in China compared to other markets. Suppliers are also recovering more quickly from the down-time. In our radiology business we see a doubling of demand because of the Covid-19 patients, and so for us it was very important to quickly ramp-up production. China was first affected by the Covid-19 crisis but they also recovered more quickly. In Belgium it is more difficult to restore production. In terms of resilience of global supply chains, China will continue to play a very important role. We will continue to expand in China. The biggest challenge we still have is in transportation. It is much harder to get the goods out of China.

Q&A: What’s the impact on the Hong Kong economy? Hoffman: Hong Kong has been in a difficult economic situation for a long while, first impacted by the protest there, moving into recession territory well before Covid-19. It’s too early to tell what the legal revisions will mean regarding to “one country, two systems”. Many multinationals have already reduced their dependency on Hong Kong as a regional hub. The situation of the Hong Kong economy is pretty dismal.

Will China repeat what it did in 2009 and implement a massive stimulus? Hoffman: No, China’s stimulus to the Covid shock would be much less than the market expected. We’re looking at about CNY4 trillion spending in 2020. It’s a significant number, but less than we saw in 2008-2009. China’s stimulus will be tempered. China has reduced tax rates, and the trade surplus has been reduced, so China’s spending capacity is not unlimited. Regulators don’t want to open credit channels in an untargeted, unconditional, unlimited way. China has been struggling to deleverage in the past 10 years.

What surprised you most about the session of the NPC? Hoffman: We are happy to see that no GDP growth target has been set. It is a big change and the Chinese leadership has captured the opportunity in this crisis. Pintelon: China continues to invest in its own infrastructure. In the new Huawei phone, only 1% is derived directly from U.S. supplies. I see the same in medical technology. China wants to be a developed economy and have its own industry. China will be the second biggest market for us. The two main reasons for us to continue to invest in China is the demand and to be part of the eco-system.