Many Chinese businesses, large and small, have struggled since COVID-19 emerged at the beginning of this year, forcing stores, restaurants, and factories to cut down on hours or completely shutter. While the full economic impact of the outbreak on China’s economy is still uncertain, popular business writer Wu Xiaobo in a recent report observed that about 247,000 Chinese companies declared bankruptcy in the first two months of 2020.
A report published in SupChina, a New York based, China-focused media, information services and business platform said that of the companies that pulled the plug in January and February, roughly 55% were startups under three years old. Jiayun Feng, a journalist born in Shanghai who worked for Sixth Tone and Shanghai Daily, quoting Wu Xiaobo’s financial blog said that Guangdong was the most impacted province, with over 30,000 firms going out of business in January and February, followed by Shandong, Jiangsu, Sichuan, and Zhejiang.
The observation echoes a string of previous surveys showing many Chinese companies, especially small businesses, feeling the pinch as the pandemic brought consumer activity to a halt. Almost 36% of the private-owned firms that responded to a survey conducted by Tsinghua University in February said that they were hammered by the economic fallout from the outbreak and did not expect to survive after a month. In another survey released in February, more than 60% of the small and medium-sized enterprises in Shandong said that they could only hold out for a maximum of three months under current conditions.
Unsurprisingly, Wu also noted that new companies were the most vulnerable businesses affected by the crisis. Of the companies that pulled the plug in January and February, roughly 55% were startups under three years old.
When it comes to specific sectors, Wu says that companies in the hospitality and retail industry have been going through a particularly rough time because people were advised to practice social distancing and avoid public places. This is in line with a report released by China Chain Store and Franchise Association (CCFA) about two months ago, which showed that retail shops in China were experiencing a 50% sales drop, with restaurants making only 30% of their normal profits. Other sectors that were seriously impacted by the knock-on effect of the outbreak include rental services, construction, and farming.
While the pandemic is devastating to most companies, some businesses have been thriving in the crisis. According to business data platform Tianyancha, since February, more than 28,000 companies across China have expanded their scope to include healthcare-related services and the manufacture of medical equipment such as thermometers and masks. Internet-based firms have also seized the opportunity to grow as people face a new reality in which online classes and virtual meetings have become the norm.
Wu’s report also notes that given the large-scale closure of government offices in January and February, a considerable number of companies in serious financial trouble were unable to file for bankruptcy. As China slowly grinds back into activity starting this month, the report predicts that more bankruptcy applications will go through in the next two months and more companies will officially go out of business.