In the short-term (to ~1 year), there will be a downturn but China will still be the engine for global economic growth and its role will only strengthen.
For the supply chain issues, China as a sophisticated manufacturing epicenter will continue.
As the situation stabilizes, consumption will resume and the Chinese government will take steps for this such as investment in infrastructure, not just physical infrastructure but also new/digital infrastructure.
For clients, it is important to first consider the industry. Open ones mean you must fight to win due to the level of competition. In the sectors that are in the process of opening up such as the financial sector, many foreign companies have been waiting for this. Once the market stabilizes, they will want to capture the rightful potential. The nature of the sector, its maturity and competition need to be considered.
What may be the expected lockdown period in most parts of the world?
Dr. Edward Tse: It’s hard to compare long time period in China and other parts in the world. Many countries did well and many did not. Couple months will be the minimum.
What are the long term/fundamental changes to the economic outlook and structure expected as a result of COVID-19? E.g., many companies will now ensure diversified supply chains (which may mean part of the manufacturing moving out of China) and there might be policy changes to focus on specific sectors in future?
Dr. Edward Tse: I do not believe there will be a significant exodus. The majority manufacturing will stay in China. They may want to build redundancies. However, supply chain costs are high so it’s not a trivial decision.
What has been the impact in certain specific sectors like Automobiles (Commercial Vehicles in particular) and Steel?
Dr. Edward Tse: The auto industry has declined a lot. With the demand side declines, supply side, especially steel, also declines. The whole supply chain is being hit. There will be re-energization efforts, such as new government regulations including subsidies for the industry. Couple weeks ago, the government already published new intelligent vehicles regulations. On automation robotics for goods movement, autonomous driving might come soon, mainly due to demands for goods delivery with people preferring to have a non-human interface due to COVID-19.
What impact will it have on the shipping business and how will the shipping routes change in the wake of imbalance cargo movement in the event of lockdown in various countries?
Dr. Edward Tse: There’s been a huge reduction in demand side, with lockdowns meaning there is not a lot of movement. The shipping industry will follow the new global order, and how globalization will play out. The world won’t be completely flat but countries won’t wall themselves, shipping lines will reconfigure depending on new demand and supply patterns.
In this crucial time, are there potential cures? Will there be more acquisitions from Chinese companies overseas?
Dr. Edward Tse: Short term pressure will lower valuations and it is a great time to think about acquisitions. For Chinese companies with ambition and financing power, it’s a good time to go out. I know many of our clients are taking serious steps in for acquisitions.
Many companies were caught unaware and unprepared to absorb the shock, what is your advice for companies to build a strategy to insulate from future shocks?
Dr. Edward Tse: Almost impossible to guard against black swan events, I think instead of preventing it, businesses should develop a higher sense of awareness of anomalies/risks, they must leave some resources behind. This pandemic has built new opportunities and learnings, and hopefully companies can build contingencies for the future.