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ECOMMPAY Digest: Should Chinese eCommerce fear the Coronavirus?

February 11, 2020
Alexander Pestana
Head of Business Development APAC, ECOMMPAY

Every two weeks, we’ll ask our experts to share their opinions on hot topics in fintech. This week, that honour falls to Alexander Pestana, who’s answering: will the coronavirus have negative effects on eCommerce in China?

China is fascinating: the most populated country in the world and yet one of the most secretive. From global conspiracy theories to commercial projections, not a day goes by without the East Asian giant in the news. And now, with the coronavirus epidemic dominating headlines, we’re all watching China’s every move.

Casualties of the Coronavirus

China remains an indisputable industrial powerhouse. eCommerce businesses in China – and beyond – are dependent on Chinese manufacturing. Subsequently, any interruption or delay to the production line is costly. Enter – the coronavirus.

The coronavirus has infected more than 40,000 at the time of writing, with 908 dead. Though “the consumer…has proved resilient”, PYMNTS reports, “…caution is beginning to show.”

The article quotes figures from both Visa and Mastercard, which both demonstrate an upward trajectory for cross-border volumes, as well as the growth of Caixin Manufacturing, but warns that these numbers were recorded prior to the epidemic and that results may be different following several cargo airlines withdrawing from mainland China and logistics firms telling employees to stay home.

In an attempt to minimise the effects on eCommerce businesses, China announced its decision to halve additional tariffs on $75 billion of US imports. CNN Business explains that “the reduction affects US goods that China imposed tariffs on last September” and that, starting from this week, “China will cut the additional 10% tariff rate it enacted…to 5%”.

According to the same CNN Business piece, Oxford Economics has lowered its estimate for the country’s GDP this year, predicting that even if China rebounds in the second quarter, it will grow 5.4% rather than its previous forecast of 6%.

Resilience of Chinese eCommerce

Still, it’s worth bearing in mind that not all is lost. We’ve been through this before. If we reflect on the SARS epidemic in 2003, we see a similar trend: a significant dip in China’s GDP growth during the quarter it appeared followed by higher growth in the latter quarters.

Economist Shang-Jin Wei recently outlined his arguments in MarketWatch, claiming that the coronavirus will have even less impact than SARS due to a number of factors, not the least of which is the speedy and effective response from the Chinese authorities.

The shift to eCommerce over the last two decades could actually work in favour of the Chinese economy. Wei predicts that, “much of the reduction in offline sales owing to the virus will likely be offset by an increase in online purchases”.

Furthermore, the timing of the epidemic is – for lack of a better word – fortuitous, at least when it comes to production. Wei explains, “many factories have scheduled production stoppages during the Chinese New Year holidays anyway…Similarly, many government offices and schools had planned holiday closures independently of the virus outbreak.”

And so, to summarise my thoughts on the question of whether the coronavirus will have negative effects on eCommerce businesses in China – yes in the short-term, no in the long-term. Chinese eCommerce has already proved to be a force to be reckoned with, so if we’re to look at the coronavirus epidemic in economic terms (i.e. without emotion, since the death count keeps rising and we’re all incredibly sympathetic to the victims) is a minor set-back in the grand scheme of things.

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