With many cities in China still locked down and people staying home amid efforts to contain the coronavirus, businesses that rely on China for trade and investment are bracing for potential deal drought and negative impact on fiscal performance as meetings and roadshows are put on hold.
Factors such as potential further slowdown in the Chinese economy, travel bans, and financial market volatility also dim the outlook of the global economy. Not to mention China now accounts for over 30 percent of global real GDP growth, a below 6-percent-growth in the Chinese economy could weigh on global growth significantly.
While most companies are still assessing the potential impact on their operations, industry experts spoke exclusively to Lynk about the risks ahead for different sectors and how businesses could navigate through tumultuous times.
As the coronavirus outbreak has added extra pressure to the global healthcare system, markets that have relatively weaker medical systems and less resources are most at risk. Meanwhile, private hospitals in China are also cutting their advertising and marketing expenses for the year ahead.
One commercial executive of a Hong Kong-listed private hospital chain in China said the group is looking to have an at least 50-percent cut in marketing budget for every hospital that it manages, and similar measures are likely to be taken by other key market players.
Global Supply Chains
Panic is beginning to rise in global supply chains, especially among manufacturers in China as they rely on each other to produce and deliver key components and raw materials. Many industries including automotive and electronics also source most of their parts from Chinese factories.
As Chinese suppliers’ productivity is only at 40 percent in February, industry insiders estimate there will be a 15 percent drop in overall output of products such as smartphones. Uncertainty over the resumption of full production in China will likely exacerbate the already worsening global business environment.
While firms especially listed-companies work on making key financial indicators such as profit margins stable and sustainable, many are looking into further cost-cutting. As a result, platforms that rely heavily on online advertising revenues to stay afloat will be affected.
Industry experts said Chinese internet and social networking giants such as Tencent, Baidu, and Bytedance should expect to be hit by the virus-induced gloom as popular platforms such as Weibo, WeChat, iQiyi and more see slower growth in their advertising business performance.
The live streaming sector is one of the few sectors that could potentially benefit from the virus outbreak as more people are staying at home. As a result, demand for entertainment and streaming services is poised to grow significantly. Live streaming platforms are already seeing the positive impact through app installation and mobile pop-up advertisement numbers.
But film production companies and cinemas might have a long and bleak winter ahead, as cinemas around the world will see lower box office revenues while production houses will have to make unconventional choices such as releasing their films online.
As production halts at China factories have led to worldwide shortages in auto components, carmakers are expected to see more delays in factory output and delivery.
But a marketing executive of a top Chinese automotive manufacturing company still anticipates a slight uptick in car sales despite an overall downward trend compared with previous years. He also does not see any significant cuts in advertising budget and other investments in the industry this year.
Electric carmakers are also hit by the product halts in China as it is the electric vehicle supply chain capital with over 100 EV makers, and a resumption in full factory production could take weeks.
“Mid to long term there is an increased need to localise supply chains and rely less on imports,” said Joel Chang, Ion Electric Co-Founder and Chief Operating Officer, “keeping buffer inventories might also be a necessary business cost here on”.
As the food and beverage industry in China takes a hit from the coronavirus outbreak, food delivery service apps such as Meituan and Ele.me are also seeing decline in online order numbers. Both food delivery platforms have taken measures to alleviate pressure on restaurants such as waiving merchant fees and offering loans.
An expert who works in the supply chain division of a top Chinese online food delivery service company said the virus will cause huge impact to B2C fresh food consumption in China, and the industry will be hit by long term impact that reshuffles the entire Chinese F&B market.