July 3, 2020
AliExpress WW
Sudden, new coronavirus cluster in Beijing points to the growth challenges ahead for China

Sudden, new coronavirus cluster in Beijing points to the growth challenges ahead for China

AliExpress WW

A Chinese vendor wears a protective mask as he waits for customers outside his shop in a tourist and commercial area on May 16, 2020 in Beijing, China.

AliExpress WW

Kevin Frayer | Getty Images

BEIJING — Just as most businesses in China’s capital city were ready to put the coronavirus behind them, the reemergence of the disease over the weekend has elevated uncertainty over future growth.

“High-frequency data indicate that domestic business activities are recovering, but a potential second wave of coronavirus infections may again risk consumer sentiment,“ Bruce Pang, head of macro and strategy research at China Renaissance, said Monday.

After more than 50 days without domestically transmitted Covid-19 cases in Beijing, the city reported one case on Thursday. Another six emerged for Friday, and by Monday, a total of 106 new confirmed cases had been recorded over five days. 

The bulk of the infections trace back to a major wholesale produce market called Xinfadi, located on the city outskirts, about 8.7 miles (14 kilometers) southwest of Tiananmen Square at the center of Beijing. Chinese and World Health Organization authorities have yet to publicly pinpoint a source for the latest cluster of virus cases. 

“Since Xinfadi is the largest farmers market in North China, its shutdown will drive up food inflation and depress restaurant businesses,” said Dan Wang, analyst at The Economist Intelligence Unit (EIU). “The official policy lacks clarity on how cities and individuals should respond.”

“The resurgent panic will slow the pace of other cities’ reopening, hurt consumer confidence and drive up unemployment even further,“ Wang said.

The EIU issued a report last week predicting an urban unemployment rate of 10% and a contraction of 8% in retail sales in China this year.

The world’s second-largest economy contracted 6.8% in the first quarter amid the height of the coronavirus outbreak within the country. Covid-19 first emerged late last year in the Chinese city of Wuhan and has since killed more than 440,000 people worldwide in a global pandemic. At least 8.1 million people have contracted the disease.

The outbreak stalled in China by mid-March, and the central government deemed conditions safe enough by late May to hold a delayed and shortened version of the country’s annual parliamentary meeting in Beijing. 

The highly symbolic gathering of thousands of delegates signaled that business trips to and from the city could resume without impediment, students could return to school and that social activities, including sports, could slowly get back up to speed.

The sudden cluster of cases paused all that, just as national economic figures for May released on Monday showed retail sales dropped 2.8% from a year ago and factory output disappointed. 

Over the weekend, Beijing municipal leaders said the city had entered an “extraordinary time” and began to implement virus tests for tens of thousands of people living in the vicinity of the market and those who had come into contact with it. 

Authorities are also reinstating some restrictions across the city that had been relaxed in recent weeks. Some, but not all, gyms have closed again. Widespread temperature and apartment compound entry-exit checks have resumed with greater vigor.

These measures and those taken by other cities are likely to again hit economic activity, often fueled in China by frequent business trips and social dinners.

At least 29 locales in other parts of the country have announced quarantine measures for travelers from Beijing, particularly high-risk districts of the city, according to a state media report published late Monday.

Challenges for consumption 

The reemergence of the virus increases the overhang on consumer spending, which China has been trying to rely more on as a source of growth. 

In one indication of the slump, consulting firm Oliver Wyman predicts China’s apparel market, the largest in the world at $370 billion, will lose $60 billion this year as a result of the coronavirus. The study showed lower income consumers were opting for cheaper and fewer purchases. 

Different parts of China have rolled out various measures to try to boost spending. Following in the footsteps of other cities, Beijing announced earlier this month that 12.2 billion yuan ($1.74 billion) in vouchers would be released through JD.com’s app over the next few weeks. It’s still unclear what the impact on spending has been. 

The city’s retail sales fell 21.5% in the first three months of the year, greater than the national decline of 19%, and Shanghai’s 20.4% drop.

Shanghai held its own shopping promotion event in early last month with more than 24 billion yuan in coupons. Between May 1 and 10, that drove 48.2 billion yuan in physical stores — in line with the same period last year — and more than 40 billion yuan in online sales, according to the city. 

Pockets of growth

While national-level data released Monday showed a decline in retail sales for May, the figures implied online sales of physical consumer goods rose 15.6% in May from a year ago.

Chinese people today are increasingly more willing to spend than prior generations, Qin Gang, founder of YaSong Institute of City Strategy, pointed out in an interview last week. He expects China’s long-term consumption trend to remain intact and sees particular appetite for culture and tourism-related spending, as well as in education, medical care and retirement-related categories.

The virus has also proved a boost for new kinds of businesses. Online grocery delivery platform Dada said sales in the city for Friday and Saturday increased 41% over the same period last week.

For now, Beijing’s increased restrictions are less stringent than blanket bans on returning to work that more than half the country imposed in February in an effort to contain the virus. Since March, some other Chinese locales have briefly restricted business activity to respond to small clusters of virus cases.

The economic challenges vary by demographic.

“For the higher income groups, you see a stronger recovery,” Imke Wouters, partner of retail and consumer goods practice at Oliver Wyman, said in a phone interview earlier this month. She noted that stores can attract more customers by offering more personalized experiences and advisory services. 

Longer-term, officials and businesses alike talk about significant untapped opportunities in regions outside the major cities.

Tang Min, a counselor to China’s top executive body, the State Council, and executive vice chair of the council’s Poverty Alleviation Foundation, spoke to reporters Thursday just after his trip to Guizhou, one of the country’s poorest but fastest-growing provinces.

“There is definitely employment pressure,“ he said, according to a CNBC translation of his Mandarin-language remarks. He said that in the immediate aftermath of the coronavirus outbreak, rural workers had a pretty difficult time, but now, many of them have been able to find work in the region rather than migrating to large cities.

In a sign of shifting demands, figures from Wind showed average transaction prices for residential properties are rising far more quickly in smaller cities such as Hangzhou than in Beijing.  

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