COVID-19: lessons learnt from China

China reported the world’s official first case of COVID-19 in December 2019, attributing a fish market in Wuhan city centre as the epicentre. Over the last three months, the Chinese government has introduced wide-sweeping social and economic policies to attempt to flatten the curve of COVID-19 growth in the country, while keeping the country’s economy intact as best it can. Following three months of lock-down, working from home and targeted stimulus packages, China is beginning to relax many of these restrictions. What can the UK government and business learn from China’s efforts?

1) Lockdown

China was the first country to put its citizens in a state of lockdown to try and ‘contain’ the spread of the virus. The following steps were taken:

• By 23 January, a quarantine was placed on 15 cities inside China’s Hubei Province, including Wuhan, the provincial capital. People were ordered to stay inside their homes, private vehicle use was banned, and food and other essentials were to be delivered by supermarkets, and then organised by local community groups responsible for the management of residential compounds
• The lockdown was widened to impact the whole of China, with local provincial governments taking responsibility for enforcement. Beijing and Shanghai both issued ‘Grade A’ emergency notices – one level down from being in a state of war – giving the government and police greater powers to enforce policies aimed at encouraging social distancing
• Outside of Wuhan, people were asked to register with their local police station to obtain a card granting them entry to the compound in which they lived. No one without a card would be able to enter the compound, and upon entering, everyone would have their temperature checked by a policeman, every time. Social distancing was encouraged by government announcements and the setting up of volunteer groups to manage compound registrations
• All schools and universities across China were closed, with teaching moved online. There is an unsubstantiated rumour that the summer holidays will be cancelled to allow teaching time to catch up.

2) Essential workers:

During the state of lockdown, essential workers were identified by the Chinese government to be:

• Military
• Police       
• Doctors / nurses / pharmacists
• Manufacturers of: protecting equipment and medical devices          
• Food producers 
• Supermarkets
• Transport Providers
• Logistics
• Underground network
• Delivery drivers
• Utilities companies 
• State oil and gas processing plants
• Telecommunications         
• Construction workers 
• Apartment / site management staff

‘Other related enterprises that involve important parts of the national economy or critical influence people’s livelihood, should arrange for operations to carry on as normal.’

3) Looking after employees:

• Businesses that constituted ‘Essential Services’ had to provide hand sanitiser, masks, and check employee’s temperatures every two hours. Where employees were working in public offices, these office spaces needed to be washed down every two hours
• No other government-directed financial benefits were made available. However, banks and insurance companies were encouraged to ensure that any financial issues brought by medical staff working in Wuhan Province would not become a problem or distraction during the virus period
• The staff of other non-essential businesses were encouraged to work from home, with many office buildings closing until 12 February, three weeks after the quarantine was introduced. Businesses have gradually been returning to work since that date, with staff returning to work on a shift basis
• As of 23 March, it was estimated that 75% of China’s workforce is back at work. However, strict restrictions remain in place. Office buildings ask that all offices report the temperatures and travel histories of their employees (even if that is just to the local supermarket). Staff are expected to return on a shift basis with one-on, one-off where possible. Within office buildings, staff must wear face masks
• To encourage businesses to keep staff on and pay wages companies were allowed to delay social insurance payments to employees until late April, and SMEs saw VAT cut from 3% to 1% until the end of May
• SMEs who retained all employees could have all unemployment insurance premiums for 2019 refunded. SMEs who hired fresh graduates received salary subsidies
• Some private companies did reduce staff salaries to a basic salary while working from home
• Firms in Hubei Province, the epicentre of the outbreak, will not have to pay pensions, jobless and work-injury insurance until June. Small firms elsewhere in China do not have to pay these until April.

4) State-level fiscal policy:

• People’s Bank of China (PBoC) cut the benchmark lending rate to lower financing costs for businesses
• The one-year loan prime rate was lowered by 10 basis points from 4.15% to 4.05%
• The one-year medium-term loans to financial institutions were reduced from 3.25% to 3.15%
• PBoC pumped an additional 1.7 trillion yuan into the economy to act as a stimulus
• PBoC announced that it will cut the reserve requirement ration by 50-100 base points from the current level of 12.5% for banks that have met inclusive financial targets. This went into effect 16 March
• The Ministry of Finance reopened an issue of 1-year bonds from 9 January, auctioning an additional 26-billion-yuan worth of bonds on 19 February
• The government announced that it will keep the minimum purchase price for rice stable for the year and will accelerate pig production and increase state reserves of frozen pork
• Government to subsidise international flights. Both domestic and foreign carriers will receive subsidies for their China inbound and outbound flights, based on mileage and passenger capacity
• Certain port, railway, container and cargo fees have been waived or discounted from March to the end of June to alleviate the financial burden on transporters
• Insurance providers have been encouraged by the government to extend insurance coverage periods or deduct policy renewal fees for commercial vehicles, ships and airplanes suspended because of the epidemic.

5) Impact on British business supply chains:

• When surveyed in late February, only 3% of British businesses exporting to China planned on shifting their focus to other markets long term, but nearly one third of businesses that imported from China were looking for new suppliers
• British business importing from China suffered more than those exporting, as China’s own logistics capacity suffered from reduced service as a result of the lockdown and travel restrictions. 62% of importers reported problems with freight deliveries compared to only 27% of exporters
• Two-fifths of British business reported cash flow problems. Fixed costs and unpaid receivables were particular problems for UK companies doing business with China
• The majority of business saw the virus as a short-term hurdle, with 66% of respondents saying that they were not diverting their long-term strategy away from China
• Delay due to closure or lack of workers was the biggest issue facing British business in China. Following those, communication issues, resulting from lockdown and travel restrictions implemented around the Lunar New Year, when many people had travelled back to their hometowns, meant locating business partners was a challenge.

6) Employee-sharing in China:

• Some companies chose to ‘employee share’ to cope with the virus. Particularly those in the catering and travel & tourism sector, who suddenly had too many staff and could allocate additional resource to those within logistics or online retail, for example
• “Sharing” referred to temporary hiring, whereby it would be arranged for one company to temporarily move employees from a company with a surplus of workers, to ones where there was an immediate need
• [Case study] Restaurant chains, XiBei and YunHaiYao arranged with Chinese e-commerce giant, Alibaba, to have hundreds of otherwise redundant employees transferred to work for Alibaba’s online grocery chain, HeMa, to help with processing and packaging online orders. More than 3,000 new employees from 40 companies in different sectors have joined HeMa’s employee sharing plan as goods sorters or packers
• Apparently 45% of companies have reportedly employed flexible workers, and approximately 92% of employees to try temporary employment.