Witnessing the systemic crisis, as well as adaptive transformations, during the epidemic.
It's been nearly one month since the outbreak of the novel coronavirus in China, and the global economy is still shaking.
While the plague may be slowing its pace, the negative resonance is still being felt by various industries. Analysts describe a gloomy outlook for the Chinese economy, downgrading the GDP growth forecast for 2020. Citigroup economists, for instance, expect 5.5%; Barclays has cut GDP growth forecast by 40bp to 5.4%.
From the production side, the manufacturing and services sector will drag on growth. A plethora of startups that are on the part of industry chains are taking a hit, for they rely on the upstream and downstream dynamics to adjust supplies; Internet enterprises that sell virtual products or services, however, are grabbing the one-time chance to scale.
The big wait and see for us in the coming months will be whether further strife or a fast expansion comes for Chinese companies. Nimble investors will find out those who battened down the hatches and endured the thunderstorm, which in turn might generate fruitful returns.
The prospect of stagflation has baffled China for the past six months. The economy saw a 4.5% increase in the consumer price index (CPI) in November 2019, a near-eight-year high. Economists expect an acceleration in the first half of 2020 due to the depressed supply. The unemployment rate was nearing 4% as of the end of 2019.
On the other hand, venture capital funding plummeted by 60% in January from a year ago, halving the number of deals closed/announced. A slowdown investment pace in the first quarter, especially the days before or after the Spring Festival, is commonplace.
This month, investors talked reported that their one of investment activities, due diligence, has indeed been impacted due to the epidemic’s rise in January. They are also helping with portfolio companies to review the cash flow model and downgrade expectations. At the same time, investors might adjust valuations decided before, or speed down term sheet and other negotiations.
In the wintertime of capital flow and the national economy, it's going to be a tremendous challenge for startups.
The logistics bottleneck has become one of the biggest challenges for retailers. As China's quarantine measures unwind, many warehouse and logistics practitioners are unable to go back to work.
According to data collected by G7, one of the largest fleet-management firms in China, the crisis has highlighted a more severe hit taken by Less-than-Truckload (LTL) than Full-Truckload (FTL). The LTL market saw a wider gap between the recovery in 2019 and 2020 on February 20, compared with FTL.
As consumer preferences become less dynamic and focus on daily necessities, LTL shipping is in less demand than before. Despite the short-term impact, we believe that LTL, a dynamic and agile way of shipment, will continue leading the way. Several days ago, Yimidida landed a near-CNY 1 billion (USD 140 million) Series D+.
On the other hand, consumer preferences changing under extreme circumstances is also an interesting phenomenon in China. In 2003, the SARS outbreak helped such online shopping sites as Taobao and JD.com penetrate the whole country. Likewise, the disruption caused by the COVID-19 may end up creating new winners and losers once again.
In the retail industry, those who benefit from a short-term pickup in orders – such as online grocery firms, including Miss Fresh and Alibaba's Fresh Hippo, as well as established wholesales stores Sam's Club – are benefiting from a reliable supplier network.
Although those marketplaces are facing challenges of imminent supply shortages, supply chain firms are expected to gain traction in the long-term. The lifting of confinement measures will likely trigger a pent-up consumer demand, which adds a higher requirement to the efficiency of supply chains; at that time, supply chain management (SCM) and B2B marketplaces will sit at the core position along the industry chain.
The shift from traditional stores to digital purchasing also asks for better user experience (UX), and thus, those upstream players maintaining its advantages on high operation efficiency, service levels and integrated procurement.
Top players can consider M&As to expand and build stronger supply networks after the crisis, following the step of Sysco to be a billion-dollar company (Check out the story about its Chinese counterpart Meicai).
We tapped into an array of marketplaces in the report on China's Industry Internet (Check the report)
The harshness of the overall new car sales downturn in 2019 has been well expected by OEMs, as they already saw a 2.8% decrease one year ago.
At the end of 2018, energy vehicles (NEVs) recorded more than 1.3 million sales, and 2 million seemed reasonable in 2019. However, it reduced to 1.2 million, representing a 4% year-over-year decrease.
The NEV market share had grown from 4.5% in 2018 to 4.7% in 2019. The goal of 5 million NEV sales in 2020 that China is heading towards still looks promising as more carmakers mushroom in the ‘Middle Kingdom’; it just needs more patience.
NIO, the so-called pioneer of the Chinese premium EV maker (NIO:NYSE), just raised USD 100 million through a convertible bond offering several days ago. The funding has saved the company sitting on USD 274.3 million cash as of September 2019 while losing USD 352.8 million in 2019 Q3.
NIO maintains its highest awareness of Chinese EV brands among Chinese consumers; its sales in January reached 1,483 units, dwarfing Xpeng's 1,073 and WM Motors' 808.
Despite NEV sales' dive in 2019, China's luxury car market has taken off. For instance, car sales by German luxury carmakers in 2019 grew 4.1% from one year ago.
B2C car-selling platforms like Chehaoduo (the parent company of Guazi and Maodou) and Uxin are facing losses and uncertainties about when dealers will resume work, the upstream suppliers of their products.
While more consumers might consider car ownership due to the fragile public transportation systems seen in the crisis, the eventual demand increase remains uncertain.
What remains as the long-term thesis is investing in aftermarkets (B2B auto parts marketplace), electrification (battery and charging station) and intelligence-related ventures (lidar, sensors, autonomous driving algorithms), as we described in the latest auto and mobility-themed article.
The primary market has already reacted to these directions, as represented by fundraisings like autonomous driving company AutoX (Pre-Series B), Hesai (USD 173 Million Series C) and aftermarket player Casstime (USD 80 million), to name a few.