2020 is the last year that China announced that “GDP will double in ten years.” For Chinese companies, this is a year full of challenges and pressures? Regulations have become stricter, reputation risks have become more unpredictable, and consumers have become more discerning. However, as an important source of global demand, innovation, capital and emerging competitiveness, China’s importance to most global companies is also increasing day by day.
Just entering 2020, a sudden epidemic has made people more sober, and the cognition of the industry and enterprises is returning to common sense and essence. There is a good saying: “Don’t waste any crisis.” What problems did the short-term crisis expose? What will the long-term situation look like? “Family Business” magazine recently summarized the research and analysis of some economic and financial research institutions and experts and scholars from Peking University, Tsinghua University, and China Europe Business School.
Industry Impact: VS short-term long-term
impact of the sudden outbreak of a new crown viral pneumonia industry fundamentals are multi-level, Haitong Securities Research Institute report pointed out that in addition to transportation, film and television media as well as catering and tourism industries in the limited flow due to reduced short-term impact In addition, we have also seen short-term demand growth in industries such as medicine, mobile games, and cloud computing (see Figure 1 and Figure 2).
The macro analysis team of GF Securities believes that due to differences in cost structure, debt scale, and cash flow conditions, various industries have different anti-risk capabilities. It takes 36 sub-sectors in the industry as the research object, and analyzes the financial indicators of industrial enterprises and the input-output table, and draws the following four conclusions: industries with low fixed costs are less affected and have strong cash solvency Industries that are less affected, industries that are less dependent on logistics and channels, and industries that are less dependent on labor are less affected (see Figures 3-7).
The “Theme Strategy·Ten Potential Changes Brought by the Epidemic” report issued by the Research Department of CICC, with reference to the impact of the SARS epidemic and comprehensive information from various aspects, sorted out the ten medium- and long-term changes that this epidemic might bring (See Table 5).
SMEs: I am afraid it will be more difficult
Xu Xiaonian, a lifetime honorary professor of China Europe International Business School, pointed out that the new crown virus pneumonia epidemic affects China’s economy for two to three quarters at most and will not change the medium and long-term trend of China’s economy. However, some small-scale private enterprises may be more difficult, and small, medium and micro enterprises are related to 70 to 80% of employment in cities and towns and cannot be taken lightly. In the short term, it is necessary for the government to take targeted measures to help private enterprises alleviate their difficulties. The fundamental problem to be solved in the long term is the protection of property rights and fair competition.
Zhu Wuxiang, Professor of Finance Department of School of Economics and Management of Tsinghua University and Director of Business Model Innovation Research Center, Liu Jun, General Manager of Beijing Small and Micro Enterprise Integrated Financial Services Co., Ltd., and Wei Wei, Professor of Management at Peking University HSBC Business School, recently conducted a questionnaire on 995 SMEs survey. The distribution of these SMEs industries is: high-tech 18.51%, retail service industry 17.1%, catering, accommodation, entertainment and cultural tourism 15.69%, processing industry 14.19%, logistics transportation and wholesale trade accounted for 8.35% and 8.15% respectively. Companies with less than 500 employees accounted for 92.16%. Companies with revenues of less than 100 million yuan in 2019 accounted for 84.4% of the total. When asked how long the cash balance on the account can be maintained, 34% of the companies said it could only be maintained for one month, 33.1% of the companies said it could be maintained for 2 months, and 17.91% of the companies said it could be maintained for 3 months. In other words, 67.1% of the companies can last for 2 months, 85.01% of the companies can last for up to 3 months, and only 9.96% of the companies can last for more than 6 months (see Figure 8).
In terms of corporate expenditures, employee salaries and five social insurances and one housing fund accounted for 62.78%, rents accounted for 13.68%, and the two combined accounted for 76.46%. This shows that most small business employees’ salaries and five social insurances and housing fund accounted for the bulk of cost expenditures, followed by rent. In addition, loan repayment accounted for 13.98%, and the three items accounted for 90.44% (see Figure 9).
In order to tide over the difficulties, 22.43% of companies plan to cut staff and pay, 21.23% of companies prepare loans, 16.20% of companies choose to suspend production and business, 13.58% of corporate shareholders increase their capital by themselves, and 10.16% of companies choose private loans. Of course, companies may take a variety of ways to overcome difficulties at the same time (see Figure 10).
In the face of the sudden epidemic, all consumer goods and retail companies cannot stand alone. Clear judgment and active planning are essential. For the retail companies that have been greatly affected this time, Bain & Company suggests that they can respond by “focusing on one thing in the short-term, strengthening two things in the medium-term, and improving three things in the long-term” (see Table 1).
McKinsey Consulting recommends that consumer goods and retail companies take a series of urgent tactical measures in the short term to overcome the pain; in the medium and long term, companies should focus on post-crisis growth and recovery strategies, look to the future, actively deploy the “new normal”, and establish their own Competitive advantages (see Table 2).
In addition to retail companies, companies in the medical industry have also become the targets of attention from all walks of life in this war. This incident is a very stressful test for the entire medical industry. The process must be arduous, but the difficulties and changes now experienced are likely to become a catalyst and accelerator for the development of the entire industry. Bain & Company’s report believes that whether it is a local or a transnational medical industry, it is necessary to stay ahead of the crisis and act on the spot (see Table 3).
Policy responses: let the “water” flowing to private enterprise “field” in
downward pressure on economic impact of the epidemic overlay the new crown will make the balance of macroeconomic policies more inclined to “steady growth.” During the epidemic period, various ministries and commissions of the State Council and various local governments successively introduced safeguard policies to support small and medium-sized private enterprises in responding to the epidemic and help enterprises to tide over this difficulty smoothly (see Table 4).
China Merchants Bank Research Institute pointed out that in terms of monetary policy, marginal easing, tempo, and intensity will be increased. The necessity and urgency of MLF interest rate cuts have further increased; it is not ruled out that the central bank cuts the benchmark deposit interest rate to further reduce the financing cost of the real economy to open up space; targeted RRR cuts for small and medium-sized banks are also possible policy options; in addition, policies are increasing the impact on epidemic areas Monetary and credit support for industries related to epidemic prevention and control. In terms of finances, it is expected that the implementation of the actual fiscal policy in 2020 will be more active than the Central Economic Work Conference at the end of 2019: the target deficit rate will be raised to 3%, and the amount of new special debt will be further increased to more than 3 trillion. Further stimulate the growth of infrastructure investment and hedge the negative impact of the epidemic on consumption and imports and exports. The field of public health will become another focus of fiscal expenditure.
The “Guanghua Ideological Power” Macroeconomic Forecasting Task Force of the Guanghua School of Management, Peking University released a report titled “The need to take into account the dual goals of epidemic prevention and control and the resumption of production”, stating that “monetary easing, targeted support” and “financial subsidies, tax concessions” It is the main content of the current economic and financial policies. The Central Economic Conference proposed that a prudent monetary policy should be flexible and appropriate. In the short term, monetary policy will adopt precise intervention measures to prevent risks such as insufficient market liquidity and unexpected fluctuations. For small and micro enterprises and private enterprises, especially those enterprises that are more severely affected by the epidemic, we will implement targeted interest rate cuts, targeted RRR cuts, and targeted refinancing to build “three fixed supports.” In terms of fee reduction and tax reduction, the government has introduced many measures before 2020. The research team has predicted that the new tax and fee reduction measures in 2020 will be structural policies (such as high-tech, small and micro enterprises, etc.) in line with high-quality development. Structural tax and fee reduction measures). However, when the current impact of the epidemic on the macro economy is still unclear, fiscal policy will be the most effective means for preventing and controlling the epidemic, restoring production, and corporate credit in the short term.
Xu Xiaonian believes that fiscal expansion needs to be carefully considered. Compared with increasing the deficit rate, a more effective way is to reduce other government expenditures to obtain fiscal space to help small and medium-sized enterprises. Monetary policy should also be loose, but it is more important to solve the problem of poor monetary policy transmission. We must find ways to open channels so that the “water” released by the central bank can flow into the “fields” of small and medium-sized enterprises.
