COVID-19 and China: New Challenges and Opportunities
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COVID-19 and China: New Challenges and Opportunities [You industry]: Trends and Startups 2019 Next Global Tech 50 About EqualOcean EqualOcean is an information service provider and investment research firm that aims to become a global platform for industrial innovation. We strive to make technology inclusive, accessible and transparent. Founded in October 2018, EqualOcean is an international branch of EO Company, a leading Chinese tech media and investment research organization that is headquartered in Beijing and has offices in Shanghai, Shenzhen and New York. Contents 4 Introduction 5 Highlights 6 Overview 7 Stock market 8 Inflation? 9 Industry breakdown 10 The real economy 12 The contactless economy 14 Semiconductor industry 19 Fintech industry 23 Healthcare industry 29 Education industry 31 Retail & consumer industry 36 SaaS industry 38 Through the darkness, we see hope Highlights China’s economy is facing unprecedented challenges • At the end of March, the total market cap of The pandemic exposes the Shanghai & Shenzhen stock dichotomy of China’s markets was at CNY 45.84 economy trillion, decreasing 2.38% compared with December, • Supply chains are heavily As China gained the 2019. affected by the pandemic. control over the outbreak • Total GDP in 2020 Q1 was • There was a shortage of • In March, the CPI fell to CNY 20.65 trillion, a year- about 60,000 medical 104.3 as companies on-year decrease of 6.8% at infrared cameras and started gradually comparable prices. about 550,000 handheld resuming operations. medical infrared cameras as of late February. • China demonstrated risk management ability that • Remote working, life led to a quick economic streaming and other recovery. online platforms are benefiting since the start • In the post-pandemic of the outbreak. period, the order of globalization is likely to be restored, with global supply chains getting localized and diverse. Introduction The coronavirus pandemic is exposing a dichotomy in the world’s tech economy. Companies such as Zoom are riding a surge in remote working and SaaS, while thousands of businesses with outsized footprints in the real economy are being exposed to a huge rift. Chinese technology firms have played a prominent role in the battle against the outbreak. The pandemic boils down to the difference between hawking analog and digital wares. In the real economy, to cut the high holding costs, many practitioners aim at ‘zero inventory’ for lean production, which has proven itself to be efficient in normal times. At the same time, manufacturers need to rethink their strategies to mitigate the risks as their vast business footprints make supply chains fragile when global emergencies happen. Unlike the manufacturing firms, which are struggling to cope with uncertainty and risks to varying degrees, online platform-based software businesses, such as Zoom, Tencent and ByteDance, are benefiting from hugely increased user traffic as millions are staying at home. Tencent, which has reported earnings for March, is expected to unveil a surge in time spent on games such as Honor of Kings and growth of activity on WeChat. Zoom’s daily users ballooned to more than 200 million in March from a previous record of 10 million. We believe that, in the short term, the pandemic will not spur ‘de-globalization.’ Because many countries need to resume operations as soon as possible following the damage to their economic vitality, the best way is to rely on the globalized efficient division of the labor system and resume operations as soon as possible. ‘De-globalization’ would mean the need to rebuild production lines, add fresh support to the industrial chain and train skilled workers. This requires a lot of time and capital expenditure. With the economy in disarray from the pandemic, it is not likely to happen in the short term. In the long run, the pandemic may not push foreign companies to leave China, but is projected to increase China's attractiveness to foreign investment. The social order, management capabilities and completeness of the industrial chain that China demonstrated during the crisis are the keys to overcoming the pandemic and resuming production. There is also the manufacturing advantage of China over other emerging markets to consider; if the world enters the stage of normal pandemic prevention, this strength will appeal within numerous areas. In the post-pandemic period, the order of globalization can be restored shortly, with more resilient global supply chains. Key contacts Yi Huicong Zhang Fan Huang Yuanpu Analyst Co-founder Founder Smart manufacturing, Auto [email protected] [email protected] [email protected] Acknowledgement Chenli Shuhong Feng Linyan Fu Yingwei Ivan Platonov Analyst Senior Analyst Analyst Analyst Fintech, Retail Enterprise services, Auto Artificial Intelligence Markets, High tech [email protected] [email protected] [email protected] [email protected] Qian Chendi Qasim Khan Wang Butao Yusuf Tuna Analyst Analyst Analyst Analyst Fintech Education Retail, Consumer Healthcare [email protected] [email protected] [email protected] [email protected] The author wishes to thank Luke Sheehan for his editorial support, and EqualOcean analyst team for their reviews and ideas. 5 Overview China’s Seasonal GDP (in tn CNY) GDP Growth (Y-o-Y) Primary Industry Secondary Industry Tertiary Industry 6.8% 6.8% 6.7% 6.7% 6.8% 6.7% 6.5% 6.4% 6.4% 6.2% 6.0% 6.0% 27.80 25.88 25.23 2.75 24.29 23.54 23.45 2.49 -6.8% 22.40 1.44 1.98 21.28 2.30 1.82 21.81 20.20 20.20 1.30 0.88 20.65 1.83 1.02 18.19 1.26 0.86 10.93 0.82 10.40 9.76 9.79 9.31 8.18 9.54 9.11 7.36 8.23 8.46 7.66 6.93 13.46 14.13 11.99 12.31 12.98 12.75 13.08 12.27 10.43 10.70 11.00 11.71 11.69 Q1/17 Q2/17 Q3/17 Q4/17 Q1/18 Q2/18 Q3/18 Q4/18 Q1/19 Q2/19 Q3/19 Q4/19 Q1/20 Source: National Bureau of Statistics, EqualOcean analysis In the recorded history, due to natural disasters or On April 17, the National Bureau of Statistics epidemics (such as COVID-19), many civilizations, released the GDP in the first quarter. Total GDP regimes, and empires have ended. Covering about in 2020 Q1 was CNY 20.65 trillion, a year-on-year 190 countries, killing more than 15,000 people, decrease of 6.8% at comparable prices. COVID-19 has been declared as pandemic on 11 In general, China's economic remained stable March by the World Health Organization (WHO). under the impact of the pandemic but overall it According to WHO, China reported a cluster of was better than expected. In March, it showed a cases of pneumonia in Wuhan, Hubei Province on rapid recovery as the production and social December 31, 2019. Within a month, the number activities are resumed a lot. of cases increased exponentially, and by mid- At the same time, it should also be noted that the January 2020, the virus had spread to many other COVID-19 continuous to spread overseas, the provinces in China. Ground activity in the world’s downside risks of the world economy are second-largest economy came to a halt as drastic increasing, unstable and uncertain factors have curbs on people movement shut down factories, increased significantly, resuming production, transport and shopping malls. economic and social development is facing new There is no doubt that China’s GDP of the first challenges. quarter will have shrunk, and would reverse the a 6% expansion in the fourth quarter of 2019. 6 Stock market The capital market was negatively affected by the pandemic since January, but in March, it showed rebound as the production and social activities gradually resumed Market cap of Shanghai & Shenzhen stock exchanges（in tn CNY） No. of companies (SZ) No. of companies (SH) Market cap (SH) Market cap (SZ) 2,221 2,197 2,205 2,209 2,214 2,167 2,170 2,173 2,179 2,184 2,188 2,140 2,144 2,153 2,159 1,599 1,605 1,572 1,583 1,535 1,554 1,509 1,518 1,524 1,460 1,462 1,464 1,468 1,472 1,478 -2.38% 46.96 46.27 43.72 45.84 36.80 28.74 27.41 24.31 27.79 27.41 28.74 29.11 27.51 28.48 28.18 27.91 28.16 28.63 29.11 24.31 18.22 18.85 19.41 18.05 12.49 15.21 16.82 16.42 15.42 15.83 16.05 16.13 16.37 16.75 16.64 Jan, Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan, Feb Mar 2019 2020 Source: Choice terminal, EqualOcean analysis The chart shows the market capitalization in The total market cap of the United States stock China’s stock market. The total GDP of China in market accounts for about 166% of the total GDP, 2019 is about CNY 99 trillion, and the total market Japanese stock market accounts for about 120% of cap of Shanghai and Shenzhen listed stocks the its GDP. This proportion in Germany is about accounts for more than 60% of China’s GDP as of 106% and about 109% in France, there is still the end of 2019. Actually, this proportion is not much room for growth in the market value of the high compared with other major countries. Chinese stock market. The financial industry has shown a significant change Market cap by industries Energy Consumer discretionary Financials Utilities Materials Consumer staples IT Real estate Industrials Healthcare Telecom services 2% 5% 2% 4% 10% 9% 15% 3% 16% 3% 4% 15% 3% 15% Dec , 2019 Mar, 2020 9% 8% 30% 25% 9% 8% 7% 7% Source: Choice terminal, EqualOcean analysis 7 Inflation? In February, the outbreak of COVID-19 had a more In March 2020, the Consumer Price Index (CPI) complex impact on the price trend.