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COVID-19 and China
COVID-19 and China
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The coronavirus pandemic is exposing a dichotomy in the world’s tech economy. Companies such as Zoom are riding a surge in remote working and SaaS, while thousands of businesses with outsized footprints in the real economy are being exposed to a huge rift. Chinese technology firms have played a prominent role in the battle against the outbreak.

The pandemic boils down to the difference between hawking analog and digital wares. In the real economy, to cut the high holding costs, many practitioners aim at ‘zero inventory’ for lean production, which has proven itself to be efficient in normal times. At the same time, manufacturers need to rethink their strategies to mitigate the risks as their vast business footprints make supply chains fragile when global emergencies happen.

Unlike the manufacturing firms, which are struggling to cope with uncertainty and risks to varying degrees, online platform-based software businesses, such as Zoom, Tencent and ByteDance, are benefiting from hugely increased user traffic as millions are staying at home. Tencent, which has reported earnings for March, is expected to unveil a surge in time spent on games such as Honor of Kings and growth of activity on WeChat. Zoom’s daily users ballooned to more than 200 million in March from a previous record of 10 million.

We believe that, in the short term, the pandemic will not spur ‘de-globalization.’ Because many countries need to resume operations as soon as possible following the damage to their economic vitality, the best way is to rely on the globalized efficient division of the labor system and resume operations as soon as possible. ‘De-globalization’ would mean the need to rebuild production lines, add fresh support to the industrial chain and train skilled workers. This requires a lot of time and capital expenditure. With the economy in disarray from the pandemic, it is not likely to happen in the short term.

In the long run, the pandemic may not push foreign companies to leave China, but is projected to increase China's attractiveness to foreign investment. The social order, management capabilities and completeness of the industrial chain that China demonstrated during the crisis are the keys to overcoming the pandemic and resuming production. There is also the manufacturing advantage of China over other emerging markets to consider; if the world enters the stage of normal pandemic prevention, this strength will appeal within numerous areas. In the post-pandemic period, the order of globalization can be restored shortly, with more resilient global supply chains.

Editor: Luke Sheehan
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