Insights+ The coronavirus outbreak – Assessing the economic impact and implications for business

With the number of confirmed cases still rising rapidly, concerns about the coronavirus outbreak continue to intensify. Last Tuesday, a front-page editorial in the People’s Daily, China’s official flagship newspaper, said the country was in a “people’s war” with the virus. The World Health Organization (WHO) has also declared the coronavirus a global health emergency – although it stated last week that the outbreak is not yet a pandemic. The below article looks at the potential economic impact and how companies are responding – both from a business perspective as well as their many contributions to China’s efforts to tackle the epidemic. It concludes with key recommendations for management teams as they struggle to navigate the many risks presented during such challenging times.

It’s still too early to determine the extent of the pathogen’s impact on the Chinese economy; the magnitude will depend on when the outbreak peaks. But many economists have already cut projections for China’s GDP growth in the first quarter. For instance, the Economist Intelligence Unit (EIU) recently released its forecast on the duration of the epidemic: its baseline scenario sees the public health emergency being under control by the end of March, with China’s first-quarter growth dropping to 4.1%.

The Chinese government has taken exceptionally strong steps to contain the rapid spread of the virus – including quarantining affected areas, extending the Chinese New Year holiday, and imposing domestic travel restrictions. These will likely prove effective in turning the tide. Additionally, Beijing is expected to introduce robust stimulus measures to mitigate the economic fallout. If the outbreak is successfully contained in the coming weeks, Chinese economic growth could rebound in the second half of the year after the stimulus takes effect and pent-up demand is unleashed.

Regardless of whether the impact on China’s growth is moderate or severe, the economic repercussions will reverberate worldwide. China is now the world’s second-largest economy and the main engine for global growth; its share of global GDP has quadrupled from 4% to 16% since the 2003 SARS outbreak, and the Chinese economy is far more interconnected with the world today than it was 17 years ago. This means that global companies are bracing for a much greater potential impact.

Businesses also need to be mindful of the fact that China is under huge pressure and these are highly sensitive times in the domestic media environment – as the recent outpouring of grief online after the death of the young doctor in Wuhan made all too clear. China’s National Supervisory Commission has since announced a full investigation into the circumstances surrounding his death.

In response to the outbreak, many major companies have temporarily suspended some business operations within China. Disney has closed its Shanghai and Hong Kong theme parks. Big retail brands like H&M, Uniqlo, and Ralph Lauren have shut down many of their stores. Several international hotels have also suspended operations within affected areas. In addition, many automakers have shuttered production plants: IHS Markit expects carmakers to lose about 350,000 units of vehicle production in the first quarter. And travel and tourism have been among the most heavily affected sectors, with a number of international airlines reducing their flights to and from China or halting them altogether.

Businesses also need to be prepared for the possibility of disruptions to major events, both in China and globally. For instance, the Singapore Airshow Aviation Leadership Summit, originally scheduled to be held the day before Asia’s largest annual aerospace event on February 11, has now been canceled (although the airshow itself is still set to go ahead). Additionally, the UN has relocated a February preparatory meeting for its global summit on biodiversity – the Convention of Biological Diversity (CBD), which China will host in October – from Yunnan province to Rome.

Looking ahead, it also remains uncertain whether the annual meetings of China’s top legislature and political advisory bodies – the National People’s Congress (NPC) and Chinese People’s Political Consultative Conference (CPPCC), respectively – will be held as usual in the first half of March. Businesses should be aware that the “Two Sessions,” as they’re known colloquially, may be delayed this year as China continues its efforts to contain the outbreak.

While contending with the impact of the crisis on their businesses, a large and growing number of companies have also been marshalling their resources behind efforts to fight the epidemic. China Inc. has led the way, with 30 IT and new economy companies collectively donating over 3 billion yuan (US$432.5 million) as of the end of last month; earlier, about 80 companies from the Chinese real estate sector committed a total of 1.2 billion yuan (US$170 million) in aid.

Examples of individual Chinese companies making big contributions to relief efforts include:

• Alibaba Group is setting up a 1 billion yuan (US$144 million) fund to buy medical supplies for local hospitals in Wuhan and Hubei province; the e-commerce giant’s logistics arm has also joined forces with industry partners to launch a global logistics channel dedicated to expediting the delivery of medical-aid donations to affected areas.

• JD Logistics, one of JD.com’s business divisions, has opened aspecial channel for providing many relief materials from across China to assist Wuhan;  JD Health has also held free educational live-streams with health experts to provide people with the opportunity to better understand the epidemic.

• Tencent’s philanthropic foundation has pledged 300 million yuan (US$43 million) to set up a new fund supporting prevention and control efforts; the company has also launched an out-patient clinic map, enabling WeChat users to easily search for the closest health clinics.

• Baidu and Meituan Dianping have also each committed 300 million yuan (US$43 million) in support.

In addition, many international companies and organizations are also making significant contributions:

• Boeing has donated a quarter-million medical-grade respiratory masks to help alleviate supply shortages in China.

• LVMH and Kering have committed US$2.3 million and over US$1 million, respectively, while Swarovski has contributed nearly half a million dollars.

• Dell Technologies has donated two million yuan to the China Youth Development Foundation.

• The Bill & Melinda Gates Foundation has pledged up to US$100 million for the global response to the epidemic, with the funding dedicated to improving detection, containment, and treatments, protecting at-risk populations, and developing vaccines.\

At H+K China, we’re proud of our many clients which have provided generous donations in the fight against the coronavirus – including Tencent, Xiaomi, JD.com, Suning, Haier, Ping An, Huawei, Ford, Johnson & Johnson, The TCP Group – Red Bull Energy, Li-Ning, Coach, BHP, CFLD, Huafa, Sino-Ocean, New World, Wanda Group, and Aoyuan, among others.

Navigating the risks presented by a global health crisis such as the coronavirus outbreak can prove incredibly challenging for brands and businesses, particularly from a communications perspective. Most importantly, they would be well-advised to embed the 3Cs of crisis communications – concern, control, and commitment – at the heart of their strategies.

What does this mean? Essentially, companies should shape their communications strategies to articulate the following to their business partners, other key stakeholders, consumers, and the media:

1.Concern: express empathy for all those dealing with a very complex and difficult situation

2. Control: indicate precisely what steps the company has taken at present to address the situation

3. Commitment: demonstrate the company’s broader determination to help resolve the crisis over the longer term And why is it so important for brands and businesses to take this to heart? Simply put, those which follow the 3Cs often emerge from times of crisis with stronger connections with their target audiences; those which fail to bear them in mind will likely see their relationships strained or even seriously jeopardized.

So putting the 3Cs into action is critical. To help do so, here are some specific recommendations for companies during this difficult time.

• Set up a core hub

• Establish an internal team tasked with managing the company’s activities and communications in response to the health crisis;

• Monitor daily all updates from Chinese authorities, the WHO, and other top health organizations

• Follow closely how news is unfolding across both traditional and social media channels in today’s 24-hour news and digital media environment – in particular, don’t turn a blind eye to coverage and discussions taking place on China’s massive online platforms, such as WeChat and Weibo, which serve as hugely important sources of information for hundreds of millions of people.

• Comply with government directives

• Fully adhere to Chinese policies and follow official guidance with regards to business activities, such as the closure or resumption of operations;

• Adapt the company’s 2020 business strategy for China accordingly.

• Be transparent with employees

• Provide timely and consistent updates on corporate policies vis-à-vis the epidemic;

• Ensure staff understand that their health and safety is the company’s overriding priority;

• Be clear about all safeguards and precautionary measures being taken on behalf of the workforce, such as flexible work arrangements and the provision of protective masks and gloves.

• Keep messaging simple and factual

• Only cite official information from government or health entities in public communications to avoid the risk of being perceived as spreading misinformation.

• Engage actively with key stakeholders

• Maintain regular communications with business and government stakeholders about corporate policies and activities vis-à-vis the outbreak;

• If carrying out temporary closures or other disruptions to normal operations, ensure they are fully aware of the company’s plans to ensure business continuity going forward.

• Contribute to efforts to fight the outbreak

• For major corporates, adopt a multi-phased, diversified approach to supporting efforts to tackle the health crisis;

• Leverage unique business capabilities to help alleviate pressures on local healthcare systems;

• Ensure continued follow-up to initial relief initiatives rather than relying on just a one-off commitment;

• For those making donations, release a succinct external announcement which provides the most pertinent details, such as the amount of funds committed, the recipient entities and key beneficiaries, and what the donation aims to achieve, including quote(s) from the executive leadership team (China, regional, and/or global);

• Demonstrate how the company is having a meaningful impact without appearing opportunistic – communications surrounding donations and other supportive initiatives must show a high degree of restraint to avoid backfiring by creating perceptions of insincerity and undermining the company’s credibility as a good corporate citizen (i.e. avoid any marketing around the company’s products or services; if they are integral to fulfilling an initiative’s objectives, then make a very clear connection between these capabilities and efforts to resolve the health crisis).

If you have any questions, please do get in touch with us at GPABeijing@hkstrategies.com. We can provide more in-depth assessments about the latest developments – particularly in relation to your industries of interest – as well as support your company or organization in further developing both its internal and external communications strategies.