Coronavirus (Covid-19) – Information for Exporters
This site is to help New Zealand exporters plan, prepare and mitigate any potential impact from the novel coronavirus outbreak.
Revised: 27 February 2020
The site will be reviewed every 24 hours and updated accordingly. Updates are in bold.
To help us build a clearer picture of the situation and determine what support may be needed we encourage you to report any export issues (see below).
We anticipate ongoing disruption to business as the virus spreads and the Chinese government works to reduce the impact. This is putting pressure on all business operations in China. Many businesses have/are resuming operations however capacity is restricted and reduced to restrictions on people movements. There is also a backlog after the Chinese New Year holidays.
There is no change to the regulatory settings for trade between New Zealand and the People’s Republic of China.
No additional sanitary or phytosanitary requirements are required by the government on market access for primary sector products exports and imports due to novel coronavirus. Existing regulatory conditions are not affected. MPI has received confirmation from food safety, customs, and animal and plant quarantine officials in China stating that there are no changes to their customs and import clearance procedures.
To assist exporters, we are providing; NZTE insights from our in-market networks (noting these are not all official channels) Advice and links to third party information may be of use. We endeavour to balance timeliness with accuracy. However, due to the rapidly evolving situation it is crucial that exporters utilise a range of advice as part of their decision-making process. We recommend proactive communication with employees and business partners to discuss how your business may be affected. This includes your suppliers, logistics providers, distributors, banks, retailers and e-commerce platforms.
The New Zealand Business Roundtable in China survey of 170 New Zealand firms operating in China found that 87 per cent expect to suffer a hit of at least 10 per cent this quarter. Click here for the full release.
NZTE has established an advisory service comprising of our China team as well as a panel of external experts. This service is available to any exporters who are experiencing issues. NZTE customers should contact their New Zealand Customer Manager to access this. If you are not a registered customer contact us on 0800 555 888 or fill out our contact form.
To help us build a clearer picture of the situation and determine what support may be needed, we encourage you to report any export issues.
For existing NZTE Customers, please contact your New Zealand Customer Manager.
MPI: 04 894 0269 or email@example.com
Industries: food, horticulture, animal products, plant products, fisheries, forestry, and any other primary industry exports
Issues: quality assurances, compliance such as labelling, etc.
MFAT Export Helpline: 0800 824 605 or firstname.lastname@example.org
Issues: Service exports, non-agriculture manufacturing exports, global geopolitical and economic impacts.
MFAT SafeTravel: 24/7 Consular emergency call: 0800 30 10 30 or +64 99 20 20 20
Issues: Consular issues, travel advisories
Customs: 0800 428 786 or email@example.com
Issues: inbound and outbound border clearance issues
If you are unsure who to contact, you can call NZTE on 0800 555 888 and or fill out our contact form and one of our Customer Advisors will help.
China's Macroeconomic Situation
The Economist Intelligence Unit has lowered its real GDP growth in 2020 by 0.5‑1.5 percentage points against their baseline forecast of 5.9% for China. Actual economic impact depends on how long the epidemic will last.
The disruption in the flow of people and transport system remains a major impact is coming through disruption in flow of people and transport systems, leading to a delay in factory openings and product delivery. There are an estimated 300 million migrant workers. This means factories are facing a shortage of both workers and production inputs.
A recent survey of 342 large Chinese manufacturing companies released by the China Enterprise Confederation on 20 February indicated over 97% of these companies had resumed work but only 66% of employees had actually returned to their jobs. Companies were operating at 59% of their full capacity on average.
Covid-19 poses a threat to three main sectors of China's economy:
- The service sector, especially such consumer industries as tourism, catering, entertainment and logistics (particularly for small and medium sized enterprises).
- The manufacturing sector, typically in the mobile phones, car and electronic industries.Due to indefinite time for return to operation, which may to some extent disrupt the global industrial chains.
- The trade sector, due to the reductions and cancellations of flights, and sea routes and borders restrictions.
The current situation is particularly challenging for SMEs due to the pressure it puts on cashflow. A survey of SMEs in China highlights that a third of the companies responding only had enough cash on hand to cover fixed expenses for one month, with another third running out by the end of the second month.
China’s Central Bank has boosted access to low cost loans through six major state-owned lenders, as part of a move to ease pressure on businesses hit hard by Covid-19. RMB 300 billion (NZD 60 billion) will be provided in low-interest loans to companies short-listed by 10 provincial and municipal governments. Banks participating in the programme include the Industrial and Commerce Bank of China, Agricultural Bank of China, Bank of China and the China Construction Bank.
In another move to support manufacturers, two major power distributors will offer an average of 5% discount on electricity rates to most of their business customers regardless of size (but excluding the largest electricity consumers). The discounts will be in place through until the end of June 2020. The estimated total value of these discounts is RMB 44 billion (approximately NZD 9 billion).
Advice to exporters
Look at your market strategies and where you might want to diversify including within China too. As part of this shift your business plan to a mid- to long-term perspective keeping in mind mega trends such as the growth in the ‘middle-class’ consumer don’t change. Use the time to investigate your consumers in China and identify where you may need to diversify product offerings
Further insights and commentary:
Chinese Companies Say They Can’t Afford to Pay Workers Now, Bloomberg 19/2/2020
China’s Biggest Airlines Report Early Hit from Virus Outbreak, Bloomberg, 12/2/2020 (note there is a limit to free articles on Bloomberg)
Short video, gaming app usage surged during holiday: report, Technode, 18/2/2020
Coronavirus Crisis: Assessing Economic Impacts, The Conference Board, /2/2020
What Chinese people do during the Coronavirus outbreak, Deluxe Insights, 12/2/2020
Macroeconomic Impact of China's Epidemic and Policy Suggestions, PWC China, 11/2/2020 (Translation Required)
Webinar on the economic and business implications, The Economist Intelligence Unit, 3/2/2020
Many businesses resumed work on 10 February, albeit at a slower pace. Shanghai reportedly had only 20% of its normal metro traffic on the morning of 10 February. This indicates that most companies are still operating on a work-from-home basis in most cases.
Rail travel across China was down, by up to 80% compared to last year, over last weekend. However, the Chinese government expects up to 160 million people to return from their vacations by February 18.
Face mask production is back to 76% across 22 provinces, in an effort to meet demand in the medical sector as well as for the broader public for people returning to work.
Be proactive and keep regular communication with staff and ensure they are safe, healthy and supported. Review your travel policies in line with official advice. Setup communication plans and systems for working remotely.
Ensure you are across the requirements around cleaning/disinfecting and the use of face masks and hand sanitiser in China and make sure you have adequate supplies.
Get independent advice, including legal advice specific to your company and how you do business in China.
China to Reduce Corporate Social Insurance Premiums, Defer Housing Provident Fund Payment, Dezan Shire Associates, 21/2/2020
China Factory and Offices Reopening Schedules after Lunar New Year, Dezan Shire Associates, 21/2/2020
Webinar on Responses to the coronavirus: People, productivity and the realities of working from home, The Economist Intelligent Unit, 11/2/2020. Slides can be found here
Additional employment policies issued for coronavirus outbreak, Junhe Legal, 11/2/2020
China: Tax considerations, relocating employees in response to coronavirus, KPMG, 6/2/2020
HR Compliance in China during the Coronavirus Outbreak: FAQs, Dezan Shira Associates, 3/2/2020
How should brands handle their Comms during the Coronavirus crisis? PR Week, 3/2/2020
Coronavirus: Managing the impact on workers and business, Ashurst, 3/2/2020
China is resuming operations, with large companies in economically important provinces back to work. It has been reported that in Zhejiang, the resumption rate for industrial enterprises with annual revenue above RMB 20 million (NZ $4.4 million) exceeded 90%, and resumption rates exceeded 70% in Jiangsu, Shandong, Fujian, Liaoning, Guangdong, and Jiangxi. However, the resumption rate for small and medium-sized businesses only stands at 30%, and most back-at-work businesses are not producing at full capacity. On average, less than 60% of total output capacity has been restored.
In order to minimise further spreading of the virus as employees return to work, the Chinese government has issued Guidelines for the Prevention and Control of Epidemic Situations in the Resumption of Production and Resumption of Enterprises and Institutions (link below). It also pays to keep across different local and provincial government rules and guidelines, to ensure business are adequately prepared.
Advice to exporters:
In terms of immediate activity, make the safety and well-being of teams your priority, and invest as needed to ensure a safe and healthy working environment. Many businesses are still allowing employees to work from home where this is possible. Check in with your Chinese business partners and see how they are doing and how you might be able to support them during this time.
At a higher level, take a strategic look at your 2020 plans. Incorporate the latest market condition changes into your 2020 budget, and rebalance costs and activity based on revised revenue forecasts. Monitor your supply chain closely, realign your product offerings, commercial organisation, channel partners and marketing approach to respond to changing market conditions - both now and after the epidemic ends. Also keep a close watch for potential opportunities and be ready to move quickly if they present themselves.
Some insurance providers are not insuring any loss, damage or delay to some cargo going to China under the current circumstances.
- Proactive communication with your insurance provider
- Review applicable insurance policies
- Understand what the impacts of forced majeure mean
- Prepare for potential claims
- Map and prioritise key risks to your business
- Map potential future scenarios and develop an action plan for each scenario
- Update business continuity and emergency plans
- Communicate these plans to employees, customers, suppliers and partners
Westpac Bank (NZ) has announced relief options to affected customers which may include; a temporary overdraft facility; suspension of principal loan payments for up to three months; deferred payment on business credit cards for up to three months. Westpac is encouraging customers who have been affected to call them on 0800 606 606 to discuss their individual needs or drop into a branch in person.
Further insights:Coronavirus is dramatically changing food consumption in China – here’s how, Business Insider Australia, 19/02/2020
Restaurant sector Guangzhou, WeChat article from the Guangzhou Daily, 22/02/2020
Guidelines for the Prevention and Control of Epidemic Situations in the Resumption of Production and Resumption of Enterprises and Institutions, Chinese Central Government Web Portal. You can also read the report from the press conference here (translation needed)
Measures and precautions for businesses resuming operations in China following the COVID-19 outbreak, Deacons 20/2/2020
Beyond the Coronavirus Crisis: Prepare Now, Bain and Company, 11/2/2020
How is Coronavirus affecting your business? - Notices & Policies, British Chamber of Commerce Guangdong, 12/2/2020
How the coronavirus outbreak might affect your business contracts, KPMG, 11/2/2020
Responding to the Coronavirus: Strategic Brand Advice, United Media Solutions, 11/2/2020
AmCham Shanghai Coronavirus Impact Member Survey, America Chamber of Commerce – Shanghai, 7/2/2020
Marsh: Organisations need to be ‘proactive’ as coronavirus risk multiplies, Insurance Business NZ, 6/2/2020
As Coronavirus Hampers Business Activity, China Seeks to Ease Financial Pressure, Dezan Shire Associates, 5/2/2020
Coronavirus: How Companies Around The Globe Are Responding, Forbes, 3/2/2020
Restaurants and Food Service
Many restaurants remain closed across many of China’s major cities. Customers are concerned about dining out and some local authorities have been restricting in-restaurant dining but are allowing takeaway and food delivery services. There are provisional guidelines for the food service industry during the Epidemic Control Period, not permitting venues to hold banquets or large-scale group dining. Restaurants are also closed for commercial reasons, particularly a lack of foot traffic due to people working from home or lack of staff. This situation will ease over coming weeks and months, but some in-market contacts are predicting that it may not be until the 3rd quarter of 2020 before the food service industry fully recovers.
There are examples emerging of some restaurants quickly evolving their business model to work with e-commerce platforms to sell semi-prepared meals to consumers, or even supermarket-style retail, to increase the utilisation of their kitchen and dining space.
Meal delivery platforms are experiencing issues due to a shortage of delivery staff and consumer concern about food preparation. Consumers are increasingly switching back to cooking at home and getting their ingredients through shops or delivered through online-to-offline platforms.
On 12 February, The China Culinary Association reported that 78% of catering companies have lost 100% of their income in recent weeks. That equates to reduced retail sales for the catering industry of approximately RMB 500 billion (NZ $112 billion) over a 7-day period during the Spring Festival. The cancellation of around 94% of the Chinese New Year Eve dinners was likely a major factor. A further 9% of businesses lost at least 90% of their revenue and only 5% of businesses suffered revenue losses of less than 70%. During the same period, 93% of catering businesses chose to close some or all of their stores. SMEs dominate this sector, and this will put a significant amount of pressure on them.
Multiple seafood industry contacts have commented that even with a resumption to work from 10 February, there are still many uncertainties for their businesses including; staff potentially not being able to return to work on time and concerns that resuming in-city logistics may be easier than cross-province if regional highway traffic continues to be restricted.
The Fisher’s Village chain, which has 25 high-end restaurants in Guangzhou, is reported to be quickly adapting its business model to the current climate. In order to clear stock of and to help upstream suppliers, Fisher’s Village has converted parts of the restaurants into “supermarkets” to enable direct sales to consumers. Items being sold span seafood, vegetables, condiments. Many seafood items are sold at discounted prices.
The China Hospitality Association published results of a survey covering 5,109 hotels across 28 provinces. The hotel room occupancy rate for these hotels sat at 14% during the 7-days of Chinese New Year in 2020, compared to approximately 60% in 2019. Revenue per available room also dropped to RMB 113 during the 2020 Chinese New Year, well below RMB 413 in 2019. Total hotel business revenue in CNY 2020 was 67.81% lower than CNY 2019. Since January 21, 34% of the hotels surveyed (i.e. 1,747 hotels) have been closed.
Food and beverage service revenue was 65% lower in the survey hotels during 2020 Chinese New Year compared to the corresponding period in 2019.
Hotels in Beijing and Shanghai remain closed or have occupancy less than 20%. These venues have many restaurants and suppliers can expect future disruptions. For example, Beijing Shangri-La, Hotel Jen, China World Summit Wing, Beijing Millennium, Beijing Chao hotel, Beijing Wanda Sofitel, Beijing Waldorf Astoria, Shanghai Langham and Shanghai Ascott.
Last week, InterContinental Hotels reported that 160 of its 470 hotels in Greater China are closed. Similarly, the Wyndham Group had closed 70% of its 1500 properties in China as a response to the Covid-19 outbreak. The same chain noted occupancy declines of up to 75% in properties that remain open and expect little improvement before the end of March. The Hilton has temporarily closed operations at around 60% of its hotels in China.
NZTE’s own contact with a number of leading hotels in Beijing and Shanghai highlights that many have not officially re-opened and are running low occupancy rates if they do have guests. They are also operating on limited staffing currently. Some hotels are planning to formally take bookings from 1 March but will likely focus on individual guests rather than groups. In addition, several hotels plan to keep their function/banquet room facilities closed for a while longer – until the end of April in one case. When restaurants within hotels open again, it also looks possible that buffets will be shelved in favour of menu-only service for a period.
Leading hotpot restaurant chain, Haidilao, estimates an RMB 5 billion (NZD 1 billion) loss in revenue over a 15-day period around Chinese New Year. This is equivalent to around 12% of its projected 2020 annual revenue. Haidilao has 593 restaurants across 118 cities in Greater China and overseas. Meal delivery service resumed from 15 February. China Cuisine Association data indicates that restaurants made about 15% of their annual turnover during Chinese New Year in 2019, so it is not unreasonable to assume that many restaurants that had to close during the recent Chinese New Year period will be facing loses up to this level.
Since 21 February, there has been a gradual resumption to normal restaurant operation across 11 districts in Guangzhou. However, there are still 8 districts that have retained some restrictions such as not allowing diners to remove masks until they start eating and asking for masks to be worn again upon completion of the meal. In addition, in some cases no more that 50% of tables in the restaurant can be used for dining and the distance between tables needs to be at least one metre.
Advice to exporters:
Companies should continue to maintain regular contact with their importers, distributors and other channel partners to; keep up to date on their state of operation, understand any specific challenges they are facing as well as to offer support during this difficult period. These companies will have first-hand insights into how the market is currently shifting, including what channels are working and how to work through any logistical constraints in the market.
Have open and empathetic dialogue with partners. Whilst there may be immediate pressures it is important to not only discuss the short-term but also the mid-term picture for the market.
You could consider working with importers and distributors to tailor their products to the change in consumer behaviour (as a result of the outbreak) with the increase use of online business and food delivery and with some restaurants diversifying into semi-prepared meals.
China Hospitality Association Survey, 17/02/2020 (translation required)
Coronavirus dents bookings for Holiday Inn owner IHG, Reuters, 18/2/2020
Wyndham, the world's largest hotel brand, has temporarily closed 70% of its hotels in China in response to the coronavirus outbreak, Business Insider Australia, 15/2/2020
The F&B crash, the trade swarms online, 'cloud wine' & more, Grape Wall of China, 18/2/2020
China Cooking Association releases report on impact of new crown pneumonia epidemic on China's catering industry in 2020, China Cuisine Association, 12/2/2020
China Cooking Association: 78% of restaurant companies have lost 100% of their revenue, Netease, 12/2/2020
Investigation report on the start of beef cattle slaughtering and processing enterprises during the "new crown" epidemic prevention and control period, National Beef Yak Industry Technology System, 10/2/2020 (Translation required)
Aquatic industry: seed feed is cut off, sales of finished products are hampered, Farmers Daily, 10/2/2020 (Translation required)
Import and export of aquatic products under epidemic situation: Changes in overseas consumer sentiment are most worrying for industry players, Chinese Aquatic, 10/2/2020 (Translation required)
Waiting for Dawn: Catering Industry Shut Down Under Epidemic, Triple Life Weekly, 10/2/2020 (Translation required)
Coronavirus crisis | Ten ways China’s wine trade has been hurt, Grape Wall of China, 8/2/2020
12 China F&B Insiders Assess the Coronavirus Crisis Impact, That's Guangzhou, 8/2/2020
Supermarkets are largely open and well stocked despite challenges around logistics and delivery. This also reflects the effort of the government to put in place measures to ensure sufficient supply of daily necessities.
According to the China Chain Store & Franchise Association, 98.9% of supermarkets operated by the Top 100 retailers in China are now operating, with the figure placed even higher at 100% in Beijing and Shanghai. Guangdong is lower at 93.3% and was the lowest amongst 29 provinces in China. This may reflect the fact that more of these supermarkets are located within shopping malls facilities that are yet to re-open.
Online-to-Offline (O2O) retailers such as Hema, 7-Fresh and Super Species are busy and need consistent supply of quality products for consumers across China’s large cities. Retailers, such as Sam Club and Walmart, are also partnering with logistics platforms to ensure speedy delivery to consumers.
Analysis by Shanghai Business Information highlights the recent growth trajectory of online fresh platforms. Ding Dong a Shanghai-based fresh produce online sales and delivery platform for example, they have built a logistics and sales network in Shanghai, Shenzhen, Suzhou, Wuxi, Hangzhou and Ningbo.
During the first 7 days of Chinese New Year, sales reached 1000 metric tonnes of vegetables, 439 metric tonnes of meat and 350 metric tonnes of eggs. Fresh Daily, achieved a sales increase of 350% in the first 9 days of Chinese New Year compared to the same period in 2019. Suning’s fresh produce home delivery increased by 400% comparing with the corresponding period of last year. Benlai experienced a traffic increase of 300% and its daily vegetable sales were around 100,000 orders. And Carrefour, which is a more traditional retailer, has gained significant sales through its O2O WeChat mini App during.
It is not the peak season for New Zealand fruit products so it is too early to make any forecasts on how the market will play out over the coming weeks and months. What is evident is that there has growth in vegetable and fruit consumption.
China Chamber of Commerce for Import & Export of Medicines & Health Products has highlighted that since the start of the Covid-19 outbreak, Chinese consumers have started to place even greater attention on health and nutrition. It is anticipated that there will be an increase in sales of, multivitamins, vitamin C and fish oil. There has also been demand for various Traditional Chinese Medicine (TCM) products and dietary supplements associated – something linked to Chinese consumers spending more time indoors.
Chinese New Year ‘gifting’ sales were very small. As a result, there is now high levels of stock in the value chain – which means retailers may have enough stock to supply the next couple of months.
There are to be no large-scale retail promotional activities undertaken during this period without special approval as per the Provisional Guidelines for Retailers in Epidemic Control period. Retailers have said most retail promotions are cancelled as they are not appropriate during Covid-19.
Consumers are focusing less on discretionary purchases and more on staples. The sales of staple food items (as more people eat at home) and other products such as disinfectants and household cleaners are strong. Items that help pass the time of day or are seen to enhance wellbeing are also up in terms of online sales.
The China Chain Store & Franchise Association has released further data after surveying over 1,100 shopping centres. Key data includes:
- 40% of shopping centres were open from 25 January – 9 February 2020
- 41.9% of shopping centres were open from 10 – 16 February
- 70% of the shopping centres in Tier-1 cities (i.e. Beijing, Shanghai and Guangzhou) were open in the above period
- 35% of the shopping centres in Tier-2, Tier-3 and Tier-4 cities were open in the above period.
- It is understood that a shortage of hygiene control products and facilities is one of the reasons operating rate of shopping centres in Tier 3-4 cities was lower.
- For the shopping centres that remain open, average consumer traffic has dropped by 70% - 80% and the average sales revenue has dropped by over 80%, with supermarkets and pharmaceutical stores being the main destination for consumer traffic at present.
For further insights you can read this WeChat article (translation needed).
According to online media, the large mother and baby store chain Kids Want (with over 300 stores located in over 150 cities in China) has only 104 stores open at of 18 February. In contrast, online orders for Kids Want to have increased by 400%.
China’s health food market is worth approximately RMB400 billion (about NZ $80 billion). Commentators see the Covid-19 outbreak as further stimulus for market growth, especially given that Chinese consumer knowledge of health foods has grown in recent years. An area to watch is health foods that are associated with boosting immunity. Having said that, China is a market that is cluttered with many brands and, as such, the ability of brand owners to reach consumers will come down to well-designed promotional plans with sufficient budget, online and offline channel strategies, consumer education and pricing. Local regulations will also need to be met in terms of the products themselves and promotion. For further insights you can read this WeChat article (translation needed).
The pet industry is affected by the epidemic in the short term, WeChat article, FThe pet market appears to be stable but performance across offline and online retailers will differ considerably. In Beijing 95% of the 3,500 pet stores, which provide grooming and bathing services etc, in the city closed as the outbreak grew. In contrast, online retail seems to have performed better, potentially as a result of owners stuck at home and giving their pets even more attention. The online sales growth also hasn’t needed the same investment in buying traffic.
China Customs has announced 10 measures to support exporters get back to normal business operations quicker. These include simplifying registration and filing procedures and speeding up the time taken for inspection of imported raw materials and equipment needed in China. Streamlined procedures for importing food and agricultural products were included in the package. More information can be found here
Advice to exporters:
Companies supplying the retail sector – whether it be fresh or packaged products – should be coordinating stock with their importers and distributors to optimise efficiencies. Identify operational and revenue risks and reforecast demand and sales projections as required. This could include working with them to shift stock into O2O platforms. It is also worth discussing whether your packaging is optimal for current market conditions – while this is typically difficult to adjust quickly, there may be ways to bundle or do bigger package sizes for delivery through O2O platforms. This increases the “basket” size and reduces delivery costs per item.
Companies could explore options to work with “non-traditional retail” channels for your product category. For example, some convenience store chains have been restructuring their product profile to better meet consumer needs during the outbreak (for example Suning mini stores have listed fresh products). Consumers can place orders via an app and pick up the orders from the nearby convenience stores the next day.
Whilst it may be difficult it is also important that you maintain focus and communications regarding stock levels and other BAU matters. One of China’s large e-commerce players has noted that not all companies are currently proactive in their communication with them – whilst others are and therefore are top of mind.
You should consider diversification of sales channels to include both retail and food service channels. It is also to remember that consumers will remain fairly rationale in terms of their food shopping habits and will expect the products they prefer to be in consistent supply. And whilst the demand is primarily on staples and necessities, consumers will still want to eat well and potentially enjoy some luxuries.
The pet industry is affected by the epidemic in the short term, WeChat article, February 2020 (translation needed)
How to Read the Coronavirus’ Impact on Chinese Consumer Behaviour, Mark Tanner – China Skinny, 19/02/2020
Impact of COVID-19 Outbreak on FMCG Market During CNY, Kantar, 19/2/2020
The Chinese health crisis could cause $100 million dollar losses in Chilean fruit exports, Fresh Plaza, 15/2/2020
How does the corona virus affect the Chinese apple market?, Fresh Plaza, 14/2/2020
Anti-epidemic protection supply, review of major events of the week, China Chain Store & Franchise Association, 14/2/2020
China Retail Businesses Forced to Go Online Amid Coronavirus Epidemic, Walk the Chat, 10/2/2020
New Opportunities of Dairy amid Epidemic, Kantar, 10/2/2020 (Translation Required)
Overcoming difficulties | Under the epidemic, dangers and opportunities in all walks of retail, Kantar, 8/2/2020 (Translation Required)
Epidemic Impact On Consumer Purchase Behaviour, Kantar, 8/2/2020 (Translation Required)
Fresh food e-commerce (via supermarkets) is in high demand, however delivery can be slow.
General e-commerce is operating however, logistics are a challenge.
Alibaba have suggested many Tmall promotions are been cancelled for at least the first quarter. Reasons include Alibaba teams not back to work, ongoing concern for the outbreak and logistics challenges. This could result in a dip in revenue on Tmall and Taobao. Consumer are also likely to be favouring low-cost daily necessities (e.g. vegetables) instead of high-value products.
On 10 February, Alibaba announced a number of support measures for SME merchants, including.
- Reduced or waived platform fees for new TMall Global merchants coming onboarding before July 1, 2020,
- waived fees for warehouse rental space and logistics (Cainao bonded warehouses and overseas warehouses),
- reduction in operational fees for 21 service providers to the TMall Global platform and
- low-interest and interest fee loans for TMall Global merchants.
JD Fresh, and other vertical fresh produce eCommerce platforms such as Missfresh, Dingong Vegetable and Sunning have reported positive performance over recent weeks. JD has reported that sales of staples such as rice and dairy products are running at 154% year-on-year during this period. Sales of dairy, seafood, beef, poultry and eggs have all shown significant increases. They say that there is strong demand for fresh produce through both JD’s online and offline platforms. We understand that many JD team members are currently operating from home at this point and that they felt consumers were favouring “normal types of seafood” which is in daily supply rather than trying a variety of products.
Three business models are being used to speed up the delivery of perishable food to the homes of consumers:
- Using satellite warehouses that are not open for consumer shopping – Miss Fresh, DingDong, PuPu are examples of companies using this business model. Miss Fresh sales are reported to have grown 300% since the Covid-19 outbreak, with average basket size now at RMB120. In addition, daily vegetable supply for Miss Fresh has grown from 500 tonnes to 1000 tonnes and is forecast to increase further to 1500-2000 tonnes. Miss Fresh is currently aiming for 2-hour delivery, which, while fast, is slower than their previous delivery model of 1 hour due to staff shortages. DingDong sales have also grown by 200%.
- Using own retail stores as satellite warehouses – this is the model being used by Hema, for example. Goods can be delivered to consumer homes within a specified radius of the stores in as fast as 30 minutes from the time of placing an order on the Hema app.
- Offline retailers combining with 3rd party delivery providers - this model has been adopted by retailers such as Walmart, Sam’s Club and Yonghui. The delivery service is handled by providers such as JD Daojia.
China Skinny has published an infographic on online usage behaviour which can be found here
Advice to Exporters
For companies that already have an online presence, it’s time to review campaigns for the next six months of the year with their Trade Partner (TP). This includes the logistical aspects of these campaigns, the brand messaging and events. It may also be time to look at shifting offline promotional budget to online formats. There are to be no large-scale retail promotional activities undertaken during this period without special approval as per the Provisional Guidelines for Retailers in Epidemic Control period. Retailers have said most retail promotions are cancelled as they are not appropriate during Covid-19.
Review whether “hero” products fit with the current market situation. Products which are more closely associated with health and wellness, or personal care, look to be in higher demand.
O2O platforms, including 7-Fresh and Hema should still be of interest to companies exporting perishable products which require fast delivery.
Community-based social commerce is growing. Many community based “grocery shopping” Wechat groups have quickly established themselves to meet demand and to share product supply information. This model existed before the Covid-19 outbreak, but growth could well accelerate. Therefore, it is worth asking partners in the Chinese market whether they can service this business and if it would be appropriate.
Manufacturers or distributors that are traditionally B2B in focus are also ramping up their e-commerce efforts through their own WeChat platforms and mini programmes. Their aim is to reach not only restaurants or retailers, but also direct to consumers.
Companies that do not have an online presence should accelerate work to assess the commercial viability of channels for their products and qualify TP options.
Further insights:China’s Retailers and the Coronavirus Outbreak: Lessons from the Past, Bain & Company, 15/02/2020
Alibaba warns of drop in e-commerce revenues due to coronavirus, Reuters, 14/2/2020 Chinese e-commerce giant creates 35,000 jobs for those displaced by coronavirus, ABC News, 13/2/2020
Coronavirus Outbreak Drives Demand for China’s Online Grocers, Bloomberg, 10/2/2020
JD reveals how Chinese are shopping during the coronavirus outbreak, Inside Retail Asia, 10/2/2020
Alibaba unveils measures to support businesses during coronavirus outbreak, AliGroup, 10/2/2020
China Retail Businesses Forced to Go Online Amid Coronavirus Epidemic, Walk the Chat, 10/2/2020
Alibaba launches supplies-sourcing platform to support virus-hit areas in China, AliGroup, 6/2/2020
Cainiao ‘green channel’ speeds medical supply delivery during virus outbreak, AliGroup, 3/2/2020
Freight and Logistics
Ports (sea and air) are open however there are operational delays affecting imports in and exports out of China due to ongoing staff shortages. Transport out of ports is low, with some suggesting it at 15% capacity, which means businesses may need to consider deferrals to try and minimalised product delays in the short term.
Refrigerated container movements are severely disrupted as there is a shortage of drivers. As a result, there are a shortage of power plugs in ports and low availability of cold storage facilities. This is a notable congestion at Shanghai, Tianjin, Xingang, Tianjin ports where refrigerated containers awaiting pickup are been temporarily stored and plugged on board a vessel docked alongside. Reefer containers in transit to may be re-routed for transhipment or back to returned to port of origin.
In addition, the highways in some parts of China are closed and many reefer containers cannot be picked up and driven away by the trailers, which has led to the accumulation of reefer containers at some seaports
Trucking in China is severely disrupted due to driver shortages and restrictions on vehicle movement. Due to the strict control imposed in various provinces, many truck drivers are unable to return to work in time. Drivers returning from other cities are required to isolated for 14 days before resuming work. Where transport is available, the cost has increased up to 150% due to the shortage of drivers and growing demand.
A lack of labour for the trucking industry is impacting on port clearance and distribution for the wood industry. It is anticipated that this will gradually be improving as drivers end their self-isolation periods and return to work at key cities for logistics across China. Road freight accounts for about 50% of the logistics needs of the wood products industry. Some industry commentary points to transportation costs increasing by as much as 30% under the current circumstances.
Many ports, including Shanghai, Nanjing and Qingdao are prioritising the clearance of medical equipment and essential food (such as rice, flour, cooking oil, meat, eggs, milk, vegetables and convenient food). Some leading Shanghai supermarkets said New Zealand meat and fruit was cleared through customs in one day on 13 February.
Due to the rising extra costs, shipping companies are introducing a congestion tax for reefer transport to China with prices that fluctuate between 1,000 and 1,250 dollars per reefer container.
This is based on the congestion on Port and demand for Reefer plugs. The shipping lines are encouraging the use of alternate Chinese ports where possible.
There is significant disruption to air freights as a result of the reductions and cancellations in flights to and from China cancelled. Cathay Pacific for example has reduced flights by 90% in and out of mainland China. Some Airlines still servicing the Chinese mainland have announced that express rates, (increased/premium), may apply as demand is expected to increase post the holiday period, and capacity has significantly diminished. Currently that forecast increase in air freight demand has yet to materialise due to the slow resumption in trading.
Airlines that continue to have regular direct flights between mainland China and New Zealand include:
- Air China (Auckland and Beijing)
- China Southern Airlines (Auckland and Guangzhou)
- China Eastern Airlines (Auckland and Shanghai)
- Sichuan Airline (Auckland and Chengdu)
The Australian Government has introduced new cargo border requirements, requiring vessels to have been on the water for 14 days before they can berth at an Australian port. Direct southbound Asia services usually has a 10-day transit from China to Brisbane, so those vessels are expected to either wait outside of Port or slow steam in order to arrive on or after the 14-day window. This will affect some services and transit times to New Zealand, as well as vessel schedules for a period.
A leading New Zealand freight forwarder has advised there are no quarantine requirements on imports from China to New Zealand.
Some 86,000 flights domestic and international flights were cancelled in the period 23 January to 11 February. A future possibility to watch for is the consolidation of smaller carriers into the larger companies within China’s aviation sector. For further insights you can read this Bloomberg article (note there is a limit to free articles on Bloomberg).
Advice to exporters:
Proactive and daily communication with your logistic and insurance providers is essential as the situation is changing quickly.
Consider reducing shipping volumes, and stock held in China, until logistic operations resume to normal (although products may be able to clear through ports, trucking out of a port and around China is very disrupted).
COVID-19 Updates, Maersk, updated regularly - Exporters should maintain close contact with their preferred freight forwarders and shipping lines, which will be providing regular updates.
Shipping lines face troubled waters as oil tankers, container carriers and cruise lines stop calling on China for fear of catching the coronavirus, South China Morning Post, 24/2/2020
Congestion in reefer containers will remain on the world market for months to come, Fresh Plaza, 19/2/2020
Summary of the latest information on resumption of work of major shipping companies, Marine Network, 19/2/2020
Affected by the epidemic, this kind of goods cannot be unloaded in Shanghai, Ningbo, Tianjin, and the extra cost will be borne by the owner, Marine Network, 15/2/2020
Shanghai version of "Yangtze River Delta Truck Pass" released!, Shanghai Jiaotong, 15/2/2020
We could have a shortage of containers if situation in China persists, Fresh Plaza, 14/2/2020
Just now, the world's largest logistics giant suddenly announced that it would cease operations in China! SOFrieght.com, 14/2/2020
6 major shipping companies issued a notice to restrict the operation of reefer containers, the shortage of truck drivers became "intestinal obstruction", China Navigation Weekly, 14/2/2020 (Translation required)
Coronavirus in China: Applicability of Force Majeure in Contract Disputes, Dezan Shire Associates, 4/2/2020
Economic activity is restarting in China, but the level of activity varies province by province. Provincial level governments are currently balancing the maintenance of public health with restarting production and manufacturing activity. Guangdong province as an example, has provided stringent guidelines on how companies can return to work. This includes checking travel and possible exposure history of workers, and stringent rules implementing additional hygiene measures. Beijing and Shanghai also have additional hygiene measures, inspections, and limits on the number of people that can gather in one place. As large numbers of workers return to work, things are being closely monitored to ensure additional measures are being implemented and adhered to.
Where factory restarts have been announced, production activity is still unclear. Transportation challenges for migrant workers and ongoing public concern about the virus are slowing down the restart. It has been reported that 10-30% of workers are currently presenting to work at factories which have opened. It is frequently being noted that it only takes a single case of infection to cause a factory to stop production.
AmCham Shanghai recently surveyed its members. The survey, conducted on 14 February with responses from 109 members, indicates that 78% of companies do not have staff to run a full production line. Macro figures for China would support that conclusion – an estimated 300 migrant workers need to return the cities where they are employed after the Chinese New Year holidays but an estimated 80 million only had returned by February 15. Some reporting suggests that around 30% (or 100 million) of workers may be able to return before the end of February.
Advice to exporters:
In the short term, business continuity remains the priority. Companies should continue to maintain close communication with supply chain and logistics partners to understand the specific situation within their businesses.
The situation has highlighted the importance of risk management and supply chain diversification. There is value in clearly identifying and considering the feasibility of sourcing from other suppliers to help mitigate risk of overreliance on a single source for vital components.
The Government has agreed to an interim solution to support the rock lobster industry. Fishery officers can assist fishers to return a limited number of rock lobster to the sea. Fishers with live rock lobster will need to provide information to the Ministry for Primary Industries (MPI) before returning any rock lobster to the sea. Do not return rock lobster to the sea without first contacting your local MPI office. More information can be found here.
Further insights:Updated: China Factory and Offices Reopening Schedules, Dezan Shire Associates
China’s Support for Foreign Investors, Trading Companies as Coronavirus Impacts Supply Chains, Dezan Shire Associates, 10/2/2020
Relocating Your China Sourcing and Manufacturing to Asia: Procedures and Choices, Dezan Shire Associates, 7/2/2020
Coronavirus: How to Secure Your Supply Chain, Gartner, 3/2/2020
Tradeshows and Events
Below is the status of events that we are aware of. Please contact NZTE if you wish to query an event not listed here.China Food & Drinks Fair (Chengdu Tang Jiu Hui), Chengdu, 23-27 March, Postponed
Shanghai Fashion Week, Shanghai, 26 March, Postponed
Natural Health & Nutrition Expo, Shanghai, 8-10 April, Postponed
Hong Kong Seven’s Rugby, Hong Kong, 3-5 April, Postpone until 16-18 October 2020
China Refrigeration Exhibition, Wuhan, 12-14 April, Postponed
Biofach, Shanghai, 3-15 May, Postponed until 1-3 July 2020
China Animal Husbandry Expo 2020, Changsha, May, Postponed
Healthplex, Shanghai 20-22 June, Postponed
MFAT advice is do not travel to China and that New Zealanders currently in China depart at the earliest opportunity. Many airlines have paused or reduced scheduled flights to mainland China. Keep an eye on SafeTravel for up-to-date travel advisories.
Inbound business delegations are also likely to be disrupted with additional border measures.
Any foreign travellers who leave or transit mainland China will be refused entry to New Zealand. New Zealand citizens and permanent residents returning to New Zealand will still be able to enter, as will their immediate family members, but will be required to self-isolate for 14 days on arrival.
You can keep up to date on developments from Customs here and Immigration New Zealand here.
Most western premium hotels in China remain closed.
Markets outside Mainland China
Covid-19 is impacting markets in the region in different ways and at present there are no travel or trade restrictions between New Zealand and Taiwan. It is important to keep up to date with the latest Travel Advisories as well as any medical & travel security services company that exporters use.
Hong Kong is gradually returning to a steady state following the elongated Lunar New Year holiday, however schools remain in recess until at least the 16th of March. While there is reduced air traffic into and out of Hong Kong, supply lines have been minimally impacted, and the Port remains open. People are gradually making their way back to work, with Government departments given the option of working remotely until the 23 February. The Government is also encouraging private employers to make flexible work arrangements for employees in order to reduce contact among people.
Measures to relieve the impact of the novel Coronavirus, KPMG Hong Kong, 2/2020
Amid gloomy outlook, Hong Kong wrestles with novel coronavirus. But it’s surprisingly resilient, CNA, 8/2/2020
Coronavirus: Which Markets Are Most At Risk? Fitch Solutions, 7/2/2020
Vietnam Coronavirus – The Business Perspective, Dezan and Shire Associates, 7/2/2020