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China is back

By Stanley Chao · January 18, 2021

I said it after the Tiananmen riots in 1989. And I’m saying it again now, during the worst epidemic the world has seen in more than 100 years.

China is back!

The numbers don’t lie. Due to a successful COVID-19 containment policy, China has emerged from the pandemic largely unscathed. Consumer spending, infrastructure construction, factory production, and private investments all experienced major upswings in the third and fourth quarters of last year. As a result, China saw 2.1% growth in 2020, an almost unbelievable feat given an economy that was shut down for nearly six months.

Add the recently inked EU-China trade agreement, and 2021 looks even better. The World Bank has projected a whopping 7.9% growth rate for China this year, taking the country back to pre-pandemic growth scenarios.
 
But China’s future wasn’t always so rosy.

The darkest of times 
China hit rock bottom when its leaders locked down Wuhan, the epicenter of COVID-19. No one could enter or leave the city, which has a population of 11 million. Soon after, nearly half of China’s population—about 800 million people—faced some form of quarantine.
 
As someone who regularly conducts business in China, I had it rough too. I couldn’t make my bimonthly treks there. I lost contact with my staff, factories, and friends.  Factories weren’t picking up their phones, and mobile phone numbers were disconnected.  Where did they go? Were they alive? China was sealed off to the world. It was scary.
 
My clients clamored for answers. “When are my circuit boards coming? When are you going back to China?” For the first time in my career, I had no answers. With factories shutdown and employees quarantined and stranded in the countryside after the Lunar New Year, I was in the dark.

But I didn’t have it nearly as bad as those who were in China as the pandemic spread. “I just made it out of China before they locked down the country,” exclaimed Kingston Technology’s CEO, John Tu.  Kingston, the world’s largest producer of computer memory, has production facilities in Shanghai. “I was one of the lucky ones. I know friends that got stuck there for months—no family, no home, no way out.”
 
Kitty Han, marketing manager for Cambi China, a Norwegian wastewater treatment company, shared her experienced in Beijing at the start of the pandemic. “We were feared the worst as we constantly watched the news online. Then suddenly, out of nowhere, Kobe died. My God, we thought the world was coming to an end!”
 
To this day, I still do not know the whereabouts of many of my Chinese colleagues. Some remained in the countryside after hitting hard times, some lost or changed jobs, while others simply went offline deciding it was safer to hide under a rock.
 
Factories are humming again
Chinese factories, after being shut down for three to six months during the pandemic, are now humming again. During the reopening period, they were making stuff like bicycles, kitchen appliances, and vinyl flooring to fill pent-up domestic demand. Now they’re facing up to six-month backlogs to fill the entire world’s pent-up demand. And factories expect more orders as countries vaccinate their citizens and open up their economies.

My relatives in China witnessed China’s pent-up demand for travel during China’s Golden Week holiday in October when millions of Chinese traditionally travel. “I can’t buy an airline or train ticket to anywhere in China. Everything was booked solid,” lamented Uncle Zhao, who tried to book a last-minute family holiday.
 
With skyrocketing demand, especially for medical and stay-at-home products, I haven’t been able to fill orders for laptops, bakeware, webcams, fitness equipment, and believe it or not, sewing machines. I used to get two-week lead times, but I will now happily accept two months.

Factories are doing everything possible to meet demand, including adding third shifts and increasing production facilities. But it’s still not enough. Kingston’s Tu commented, “We went from total closure to 100% full production in a matter of weeks.  It’s like 1.4 billion Chinese suddenly decided to buy computer memory all at the same instant. Unbelievable! We didn’t have enough computer chips, manufacturing equipment, or staff to handle the orders.”

Not only has China’s economy returned to pre-pandemic levels, but many companies are also doubling down on their China businesses as economists predict China’s economy will lead the world out of the pandemic.

Tom Ward, president of PIM China, a market research firm based in Shanghai, feels there’s no better time to invest in China. “The current situation is much the same as it was twenty years ago. If you have a leading technology and a good understanding of the China market, I see no reason NOT to enter China now.”

My consulting business has seen an increase in companies asking to increase production capacity, hire additional employees, or enhance their marketing campaigns. And these requests are spread across many industries: air logistics, retail, machinery, and high-tech.
 
Take Starbucks, for example. The CEO and president Kevin Johnson announced in October that they would open 1,100 stores this year in addition to their existing 4,700 throughout China.

All systems go
No, nothing’s guaranteed. China hawks will argue that the country is still experiencing COVID outbreaks, thousands small- and medium-sized companies continue to go belly-up, and some economic data shows that consumer spending lags behind pre-pandemic levels. But compared to six months ago, things are looking brighter.

I’m an optimist. For the most part, the pandemic is under control as millions of Chinese plan to travel domestically this Lunar New Year holiday. Factories are back online as think tanks expect near double-digit economic growth rates this year. And foreign companies, once again, are looking to China for hyper growth as foreign direct investments outpace pre-COVID levels.

China is back!  Are you getting the message?

Stanley Chao is the author of “Selling to China,” and managing director for All In Consulting, assisting companies in their China business.  Please follow him on Twitter: @stanleychao6. You can read his previous columns on SCMR.com here and here.

January 18, 2021

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Article Topics

All In Consulting · Global Supply Chain Management · global trade · Selling To China · Stanley Chao · All Topics

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