Asia Business Channel

Foreign investors in China and Asia need to prepare for a three-year period before COVID-19 is done

 

Written by: Chris Devonshire-Ellis, China Briefing

China-based and other international media commentators have frequently been using the term “Post COVID” in articles concerning trade and business operations in China, Asia, and globally, as if the coronavirus problem is going to somehow slip away. It isn’t.

At Dezan Shira & Associates, we have clients investing throughout China and Asia from over 90 countries worldwide. We also possess a significant research and editorial team who provide us with updates and indicators to how markets are developing – or not. In order for our firm to adapt and survive, we need to know how the domestic situation is in each of our client’s domiciles.

There’s a lot of ground to cover, those of you who know our firm will recall how we’ve evolved from being a purely China practice to Asian, with offices in India and all of the major ASEAN economies. Nowadays, we also have numerous liaison offices throughout Europe, the US, South America, and along the Belt and Road. And we listen to them.

Unfortunately, what they are telling us is not great news. Just look at today’s media and it will tell you that China is experiencing a new outbreak, as are South Korea and New Zealand. All had previously been thought to overcome a so-called ‘first wave’. Other countries, such as the US, Russia, India, and Brazil are experiencing increasingly high rates of new infections. In other areas, including the European Union, relatively considered safe, new infections are still getting confirmed at thousands a day.

Yet, market watchers can take some respite in the difference in margins in the infections reported and the speed with which some countries have controlled fresh outbreaks. For example, in China, where there is a new cluster of infections in Beijing, numbers of new cases have come down (22 new cases as of the official update released on June 21; 9 cases as of June 22), suggesting a level of control.

Moreover, Chinese health officials have also established a process of quick responses to manage and contain new outbreaks through mass testing, contact tracing, and quarantining at-risk zones with full-time monitoring. This prevents a large-scale spread.

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The folly of opening up

These rising daily infection rates come at a time when economies, such as those in the EU and US are reopening for business, and home isolation is becoming less frequent. There will only be one outcome – resurgence in infections. Populism and the overall mood of public opinion – frustrated by lockdowns and aided by the ultra-capitalism of opening economies at all costs, abetted by politicians seemingly unable to direct a coordinated response – will have serious infection consequences that will become apparent within the next three months.

In such a scenario, what is exceedingly important is the manner in which these openings are achieved. Is the reopening of the economy a phased process or sudden change? Are the rules and compliance checks clear for businesses that have been allowed to operate and corporates allowed to have their workforce reporting to office?

Are commercial establishments prone to crowds like restaurants and malls subject to clear and strict guidelines and monitoring? What is the level of cooperation in the society and preparation by health and safety officials? Assessing the information derived from asking these questions will indicate that some countries will be managing the opening up of their economies much better than others. That in turn will enable a greater level of market stability.


Air travel

It’s not safe. Aircraft have filters that can block out airborne viruses, but only after air has circulated around the cabin for ten minutes. Note the June 1 flight to Athens that took off from Qatar with 91 apparently healthy passengers revealed 17 cases of COVID-19 when checked upon arrival. All passengers and crew from the plane were quarantined for 14 days. There’s an insightful piece in the Financial Times about taking flights at this time here. Furthermore, it will be interesting to note how air travel is impacted from countries that are performing poorly in their management of COVID-19.

As of now, China has agreed to allow international flights from select countries for urgent business, repatriation, and diplomatic travel, including from the US (where the COVID-19 numbers are very high), through a strict combination of bureaucratic checks and testing. However, if this movement of people inflates imported cases, it is not unthinkable that new travel restrictions get activated.


Seasonal variations

While warmer temperatures may diminish the effectiveness of COVID-19, it will not make it disappear. Hot countries such as Singapore and India have had serious problems with the coronavirus. While there may be some respite in the more Northern latitudes, there is no evidence or experience to suggest it will die out during the summer months. As we learn more, the general understanding is that instead it is likely to return again when cooler weather starts in late autumn. Given that the annual influenza season typically begins in October, that is only three months from now. COVID-19 is not going to disappear in the next three months and it is a nailed-on certainty to return with some vengeance around the end of Q3.


Vaccinations

It seems possible that vaccinations to protect against COVID-19 will eventually become available. However, there are difficulties. It appears there are at least five different strains of COVID-19, and a workable vaccine will need to be able to deal with all of these – together with any other new strains that emerge. The real issue here is time.

It appears that a vaccine fit for human use may not materialize until well into 2021 – meaning businesses need to adapt to a strong possibility of autumn / winter / spring outbreaks before anything is remotely ready. Then there are the logistics of getting a vaccine out there. With 7 billion people on the planet, that is going to be some supply chain demand to fulfill requirements.

At least China, mainly in conjunction with its Belt and Road Initiative partners, seems to be putting infrastructure in place to permit this. There has been very little talk of alternative supply chain developments to vaccinate 7 billion people, let alone their own populations in most other countries and regions. I just don’t hear about any planning for this and that is a concern.


Consequences

It is imperative that businesses involved in global trade rapidly accept the need that the only possible outcome over the next two-three years is living in a COVID-affected world. The term “Post-COVID” is redundant and far too optimistic to carry any weight. Instead, right now it increases business risk as it implies things are about to get better. They are not.

All businesses must adapt to new business operating conditions, many of which we have spelled out in the pages of China Briefing:

 

Editors Note:
This article was written by Chris Devonshire-Ellis and first appeared in China Briefing, a subsidiary of Dezan Shira & Associates, Asia's largest independent foreign direct investment practice and is republished here with their permission. China Briefing provides business intelligence to foreign investors interested in, or operating in China. For more information, visit them on the web at: https://www.china-briefing.com

 

 

 

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