Rebooting China Post COVID

China was the first country to lock down in response to the virus. It has also been the first one to start going back to work – at least, with a coherent response to the infection. The purpose of this call was to see how quickly business is resuming, and whether there are any ongoing impacts from the period of closure. It should be noted we did not have any participants from the industries which have been most affected, specifically travel and hospitality.

Overall, the feedback was positive:

• Collections: these slowed down in March, often to zero. But they seem to be coming back: while customer credit risk is being closely monitored, alarm bells are not ringing.
• Most manufacturing facilities are back on line, even if office staff continue to work from home in many cases.
• Funding: everyone saw a reduction in their normal cash position in the country. For those who are cash rich locally, this is not a problem. Others resolved the issue by intercompany loans, using their cross border cash pools to send money into China, or leading and lagging intercompany payments. 
• The increased use of intercompany lending raises regulatory issues: several participants reported obtaining approvals from SAFE in record time. The consensus was that the authorities are going out of their way to be helpful and supportive.
• Logistics: there have been some issues across the board, as it has been more difficult than usual to move goods to and from factories. While this has caused some disruption, and led more than one company to reconsider the structure of their supply chain, all reported that the issues are manageable, and being managed – though concern remains.
• Unsurprisingly, companies with export oriented manufacturing locations in China are now reporting slowdowns due to reduced demand from Europe and North America, since lockdowns have been implemented there. 
• Direct retail sales were often reduced to zero, at least for non essential goods. However, this has been partially offset by increases in on-line sales.
• Business continuity plans generally worked, with some inevitable learning. Predictably, any process which still depends on physical signatures (or chops in China) was problematic during the lockdown. Less predictably, some companies found themselves short of the laptops required for working from home.

Conclusion: at least in the short term, our participants report that they have weathered the storm well, and business is coming back relatively smoothly. We very much hope this continues to be the case, and that the same applies to other countries round the world as they come back on stream. Again, this discussion did not include participants from the industries which have been hardest hit, and we did not discuss the potential long term impacts, including debt levels.