Daily Coronavirus Webinar: lessons from China

Our Daily Coronavirus Webinar on 3 April included our regular update from Dame Carolyn Fairbairn, as well as a special focus on China's response to the coronavirus outbreak. We discussed a wide range of topics, and answered questions from the audience. We heard from:

• James Harding, Co-founder and Editor, Tortoise Media
• Dame Carolyn Fairbairn, Director-General, CBI
• Guy Dru Drury, Head of Group, Beijing, CBI
• Dame Barbara Woodward, British Ambassador to China

Overview

• On the CBIL scheme, recent government announcements are welcome. They are:
  • Personal guarantees for loans under £250k will no longer be taken. ‘banned’ was the language used.
  • For loans above £250k, guarantee requests now only apply to the remaining 20% not covered by government.
  • The government has now clarified that all viable companies will be allowed access to CBIL – not just those unable to secure regular commercial financing. In other words – it’s no longer only available as a ‘last resort’.
  • For mid-tier companies, also known as the ‘stranded middle’, we have had another breakthrough.
  • Lifting the ceiling so business with turnovers from £45-£500m can apply – for loans up to £25m. 80% guarantee, though not interest free.
• The CBI has worked all week with the Treasury, UK Finance and others to secure this change.
• You may also have seen the CBI included in the government’s official press release – a testament to the intelligence these webinars and your insight has provided.
• Going forward, the CBI will be prioritising the following issues:
  • Access to finance ongoing – see how it is being rolled out.
    • One possible route is through grants – already some facilitated by local authorities, available from April.
  • Small Business Grant Scheme - £10k cash grant for country’s 700,000 smallest businesses.
    • Separate schemes specifically for retail, hospitality and leisure - £25k cash grant per property. For both, your Local Authority will write to you if you are eligible.
  • Each week brings unprecedented levels of economic support – encouraging to see the government stepping in where urgent help is needed.
  • This needs to continue as the challenges of this health and economic crisis unfold.

Key questions we answered:

1. What is happening in terms of an international response to the crisis – and what is the CBI doing?

• There have been positive signals to global markets. E.g. $1.8 trillion US economic relief package agreed by President Trump and the US Senate on 25^th March
• At the same time, there have also been more worrying signs as countries turn inwards.
• 68 countries have put export restrictions on medical supplies this year. Risk of sentiment shift to protectionism.
• What’s more encouraging is the international coordination we’ve seen in recent weeks - Central banks quick to act to ensure that the financial system is getting funding.
• And last week we had commitments from the G20 Heads of Government to do whatever it takes to tackle this crisis – as well as commitments from G20 Trade Ministers that any restrictive measures should be proportional and time limited. The UK voice here has been strong.

2. What is the current situation on the ground in China?

• China is beginning to return to economic activity.
• Cars on the streets are at 70% of normal levels, people on the subways are at 50% of normal levels, and almost nobody are taking buses, which are the cheapest modes of transport.
• Members have slowly been going back to work. Around 30% of British businesses in China went back to work on 10th February, and more have come back online as the weeks have gone by.
• It’s important point out, however, that this has been very heavily restricted. Staff are encouraged to return to work on a shift-rotation basis and are always expected to wear face masks in the office. Companies are unable to hold face-to-face meetings, and as a result of all these restrictions, many businesses continue to find it easier and more efficient to conduct their business outside their physical office.
• In terms of businesses and their productivity, compared with ‘normal’ levels prior to the virus outbreak, China’s overall capacity is estimated to be around 78%. Big business has rebounded more quickly, with around 80% back online. SMEs are struggling, with many reporting cash-flow problems, facing real uncertainty over the next few months.

3. What is the outlook for the Chinese economy over the short term?

• The Chinese government are keen to normalise the situation in the country and get people back to work where possible.
• They have introduced a significant financial stimulus package at around 2% of GDP.
• However, this is balanced by a general concern and fear among the population about catching coronavirus. People are reluctant to put themselves at risk and go back to work. This is creating a lag in the Chinese economic recovery.

4. Are China fearful of a potential second wave of COVID-19?

• The Chinese government are alert to the threat.
• The WHO called China the safest place to be due to the lockdown measures implemented. However, they also called it the riskiest place to be due to fears of a second wave.
• For example, the Chinese government locked down the province of Henan – population of 600,000 – yesterday due to the detection of an outbreak of the coronavirus.
• The government quickly act when we see a spike in coronavirus cases in provinces.
• As an example, Shanghai took the lead on opening cinema screens 2 to 3 weeks ago. They were shut about a week later for fear of inadvertently contributing to a second wave.

5. What would be the top lessons learned that CBI members can take from the Chinese response to Covid-19?

• Be willing to be flexible and imaginative in your delivery model. People can’t go out, but that doesn’t mean they’re unable to engage with business.
• We’ve seen companies successfully shift many more of their operations online in China. Like education company Pearson – who managed to shift most of their business lines online in only a matter of days, to help students in China keep studying.
• Businesses also began experimenting more with selling into China through social media apps, such as WeChat, across a wide range of sectors. From fashion lines, such as Burberry and Ted Baker, to paints manufactured by AkzoNobel, right through to Diageo’s spirit brands, Johnnie Walker and Captain Morgan, companies were finding innovative ways to reach consumers. People are stuck at home, so it’s the perfect time to make a splash online about how ordering in a splash of Dulux could make their homes just that bit brighter.
• Importantly, companies came together to support each other during the outbreak. In Beijing, we heard a lot about ‘employee-sharing’ partnerships – to redeploy people where there were shortages. Businesses like restaurants and cinemas, who rely on a heavy footfall and are now overstaffed – have partnered with e-commerce and online food delivery firms, suddenly struggling to keep up with demand. It’s estimated that around 45% of businesses in China engaged in an ‘employee-sharing’ scheme of some form or another, and just over 90% of surveyed workers expressed interest in participating in such a scheme.

6. Are there case studies you might highlight of a business that coped best with the crisis?

• Burberry and Huawei stand out as companies who managed to make the best of the virus period, not letting disruption stand in the way of new product launches. Burberry launched its new ‘B-Series’ collection in China through WeChat, while Huawei went ahead with the launch of its new model P40 phone, with launches via live-stream rather than high-profile public events.

7. As a UK business who imports 25% of its goods from China, when can I expect my supply chain to come back online?

• We have to be realistic. The UK ambassador to China has set up a joint unit with the Department of International Trade – COVID19@trade.gov.uk and there is a website on the gov.uk page to explain the services we are providing to help unblock supply chains.
• This mechanism identifies where the blockages are.
• Companies can register the issue they are dealing with and the team will try and help.

8. It has been reported that Chinese companies are selling ventilators and ventilator equipment to Britain. How is that coming along?

• The British Embassy in China has three procurement teams – one working on PPE, one working on ventilators and one working on tests and medication.
• We also have a team working on components to unlock production issues with British companies.
• Britain is about to receive the first 300 ventilators certified by the Chinese Ministry of Commerce, which meets British standards, and this will be landing in the UK this afternoon.

9. How has coronavirus impacted supply chains, and how might trade flows between the UK & China be affected in the long-term?

• Supply chains have been most negatively impacted by reduced domestic logistical capabilities in affected countries.
• When China was experiencing peak lockdown, UK companies with supply chains in China struggled to get goods out because it was harder to move goods around domestically. Now it seems the situation is reversed – with Chinese companies struggling to get goods out of the UK.
• A real hit to supply chains came following China's commercial flight ban. Now that airlines are only allowed to run one flight per week to China, freight costs have reportedly doubled. Meaning it’s now particularly hard to get China-made medical supplies – and companies that need components in a hurry are struggling.
• The cost of freight is only going to go up, the longer the ban is in place.
• But the long-term outlook is more positive. Prior to the outbreak, UK/China trade reached a record high – at £104 billion pre-COVID-19. It’s a trading relationship going from strength to strength, with no reason why it won’t continue long term after the virus has passed.
• And when surveyed in late February of this year, 66% of British businesses in China said they had no intention of leaving the market in the long term.

10. What support can the CBI offer its members in China?

• The CBI Beijing Team has remained in China for the duration, working from home so that we too can practise good social distancing, but providing members with regular insights and updates on how best to manage the evolving situation.
• There are several ways we can support businesses struggling with COVID-19 in China. Whether by contacting Chinese suppliers your company is struggling to reach or sharing best practise we’ve collected from members facing legal issues, such as Force Majeure or stoppages at customs.
• I'd also encourage you to subscribe to our regular member communications coming out of the Beijing Office, which also feature COVID-19 very heavily. We put out an IP briefing for members on Monday, outlining how businesses could ensure their IP was protected in China during the shutdown, for example.
• And there is a huge amount of information on the CBI’s online coronavirus hub.

11. When will foreign companies be able to get staff back to the country?

• It remains very unclear and is part of the balancing act between getting the economy back up and running and ensuring citizens feel safe. On one hand, Chinese Premier has indicated that it is important that China attracts more foreign investment and turns to foreign business to support its economy in this time of crisis; implying that foreigners should be able to return sooner rather than later. However, on Chinese social media, the effective ban on foreigners is trending, with online praise for the government for putting Chinese citizens first.

12. How likely is it that China will be able to help the world economy out of recession?

• Less likely than before. China’s economy was far more sheltered from the rest of the world during the 2008 financial crash. Now that it is more integrated it is of course more heavily impacted by events taking place in the wider global economy.
• Let’s not forget, even before COVID-19, China’s economy was struggling as a result of US-China trade tensions, and those problems have not gone away.
• G20 leaders and trade ministers have met and underlined the importance of a global free trade approach to rebuilding the global economy.
• Good bilateral cooperation with President Xi Ji Ping and Boris talking twice over the phone.
• China are keen to be part of a global solution to this crisis.
• However, it is too early to definitively say how this will work out.

13. Is there a chance that China’s relations with the West will worsen because of the Coronavirus crisis?

• But for business I would say that there are concerns about some of the recent media reports about future relations being damaged. CBI members aren’t blind to the political risks around China but it is important that the trade and investment relationship continues and business is encouraged to hear that there has been close co-operation on COVID response following Ministerial contacts and hopes that high level political engagement on trade issues will resume as soon as it can.

Key takeaways

People come FIRST:

Fully review healthcare and staffing policies

IT investment to support homeworking

Review worksite health and hygiene

Show leadership from the outset

Take steps to reduce uncertainty

Be ready to ADAPT:

1. Keep up to date and plan ahead
2. Maintain close contact with clients/customers
3. Review new business opportunities

Manage RISK:

1. Frequent internal and external communications are key
2. Act fast with budgets and contingency planning
3. Assess and review your supply chains regularly

Work with COMMUNITY:

1. Build relationships locally and nationally
2. Support healthcare workers and community organisations
3. Share information and best practice
4. Develop new networks in and outside your organisation