Chinese supermarkets, airlines, and hotels are COVID victims, but ecommerce companies are raking it in

COVID and Beijing’s zero-tolerance response are having a depressing impact on consumption and cast a pall over the May Day holiday. As supply chains are snarled up and manufacturing growth prospects look dim, the contrasting fortunes of Yonghui’s 1,000-plus stores and Pinduoduo’s online marketplace is a stark reflection of China’s battle with COVID.

This year’s May Day holiday, which ended yesterday in China, was miserable for many companies. Today’s retrospective business news from China is infected with a serious case of gloom. With various restrictions and lockdowns in place, the economy suffered:

• Five domestic airlines, China Southern Airlines 中国南方航空, Air China 中国国际航空, China Eastern Airlines 中国东方航空, Spring Airlines 春秋航空, and Juneyao Air 吉祥航空, collectively lost 22.13 billion yuan ($3.34 billion) in the first quarter, continuing the trend of losses from 2021.
• Movie attendance has tanked: While movie theaters are closed down in Beijing and Shanghai, according to the China Film Administration, the national box office take during the May Day holiday (April 30–May 4) was only 296 million yuan ($44.78 million), a year-on-year drop of 82.28% and the lowest level since 2013.
• Hotels and guesthouses around the country are standing empty, and have slashed prices by as much as 50%.
• But tourism isn’t completely dead: According to the Ministry of Culture and Tourism, 160 million domestic tourists traveled around the country during the May Day holiday, but that was a year-on-year decrease of 30.2%. Domestic tourism revenue during the long weekend totaled 64.68 billion yuan ($9.78 billion), a year-on-year decrease of 42.9%.

The context

COVID’s impact on consumption patterns is vividly illustrated today in the contrasting fortunes of Yonghui Superstores 永辉超市, a brick-and-mortar supermarket chain with 1,057 stores around the country, and Pinduoduo 拼多多, an ecommerce platform connecting farmers and distributors with consumers.

• Yonghui — which tried to face up to COVID by investing heavily in new digital retail technology — lost almost 4 billion yuan ($605.20 million) in 2021, its first annual loss in 12 years. The company’s share price has dropped 64.04% over the last three years, and its market value has decreased by 77.7 billion yuan ($11.75 billion).
• Pinduoduo, on the other hand, has just declared revenues for 2021 to the U.S. SEC of 93.9 billion yuan ($14.20 billion) and net profits of 13.8 billion yuan ($2.08 billion).

But ecommerce and online business can only make up for a limited amount of economic activity in the face of lockdowns that freeze the real, physical supply of goods:

• The China Federation of Logistics and Purchasing reports today that the China Logistics Prosperity Index (LPI) — weighted by indicators of total business, new orders, employees, inventory turnover, and equipment utilization — for April was 43.8%, a decrease of 4.9 percentage points month-on-month.
• Caixin’s China Purchasing Managers Index (PMI) for April was 46.0, 2.1 percentage points lower than in March, and the Caixin China Services PMI dropped sharply by 5.8 percentage points to 36.2, in both cases the lowest level since March 2020.

The takeaway

Yonghui achieved a remarkable comeback in the first quarter of this year, reporting revenues of 27.24 billion yuan ($4.12 billion), a year-on-year increase of 3.45%, and net profits of 502 million yuan ($75.95 million), an increase of 2,053.54%. But this may turn out to be a temporary recovery. Companies like Yonghui, with a heavy dependence on offline stores, as well as many entrepreneurs and manufacturers are sitting tight, waiting for the COVID crisis to pass.

But the other side of this story, of course, is China’s man-made zero-tolerance response to COVID and the heavy burdens it is placing on China’s economy. How long will Beijing continue to constrain economic growth and development in order to ensure that the coronavirus does not spread?