Greetings From Shanghai!
To those of you who know me better – you have become accustom to my email greetings – From Shanghai!
China is my country and Shanghai is my city. Even though I was not born here and have only lived here for 17 years, as a native New Yorker, I have found my time in China and especially Shanghai to be extraordinary on a daily basis. This is my home, this is my work place, my passion, my source of energy, where the dreams are made and where friends and family play. I seriously believe if you don’t live in Shanghai, you are just not living.
So excuse me for being a bit passionate as around me every day I see the pain and suffering of a country that is going through a once is a lifetime crisis. There is tremendous uncertainty in how the ongoing virus throughout China will develop or end. But I have no doubt that in the near future the crisis will subside, China will reinvigorate itself, overcome the errors and be stronger in the future.
During the years that I have lived here, I have come to appreciate and respect the tenacity of Chinese people. No matter what the challenge, no matter the adversity, no matter the cost, regardless of the height of the mountains or the depth of the valleys, China will get to where it wants to go.
No country in the world could respond perfectly to a health crisis as China has encountered. In retrospect there can always be better choices, but in reality one has to take action that is responsible and poignant at the moment. China has taken the steps necessary to control viral spread, to secure public safety, to guarantee that economic activity will come back and that the country will be stronger in the long term.
Although people are scared because of the possibility of evolution and spread of the coronavirus, it is important to put it into perspective.
The percentage of people in China who have been infected by the COVID-19 as of today’s writing is 0.000031895%. This means you have a 3 in 1 million chance of getting infected if you are in Wuhan.
In contrast, 80,000 people died from the H1N1 flu in the 2018-2019 winter in the United States alone.
The 2017/18 overall all-cause influenza-attributable mortality in the EU was estimated to be 25.4 per 100,000 for persons aged 65 or over. This translates into over-all 152,000 deaths.
So far, flu has killed 10,000 this winter in the US. The US Center for Disease Control and Prevention expects between 12,000 and 61,000 flu deaths each year in the US.
A 2017 study published in The Lancet estimated that between 291,000 and 646,000 people worldwide die annually from the flu. The World Health Organization estimates that about 1.4 million people die each year in traffic worldwide, with roughly half of those deaths caused by drunk drivers. In 2017 in the EU, roughly 19 people per 1 million inhabitants died in urban road accidents. The coronavirus is very serious, but even the worst-case predictions show much less death and injury than these recurring dangers.
Since we don't yet know how long the coronavirus epidemic will last or how widespread it will be, estimates of the impact vary widely. On the pessimistic side, Ren Zeping, chief economist and director of the Evergrande Think Tank, expects the Chinese economy to slow to 5.4 percent growth in 2020. His worst-case scenario calculates that growth could slow to 5 percent, as reported by Caixin, an independent Chinese financial publication.
On the optimistic side, Wei Shangjin, professor at Columbia Business School and former chief economist of the Asian Development Bank, told Caixin that he estimates a decline of 0.1 percentage point of growth.
Regrettably, the short-term impact to travel and shopping will be dramatic. Over the next weeks, global Chinese travel and shopping will diminish. But over the longer term, the continuing economic growth, expansion and life of Chinese global travel and shopping consumers will not be diminished. The fundamental factors that drive global travel and consumerism from China have not been altered by the crisis.
"Based on the experience from the SARS crisis in 2002-03, we can foresee a quick rebound of the Chinese economy in terms of recovery of inventory, restocking demand, uplift of consumption of goods and services after the freeze," said Denis Depoux, managing director for China of global consultancy Roland Berger.
The economic growth will also get strong fiscal and monetary support from the government; and local infrastructure investment, financed by special bonds, as in 2019, will support the economy, he said.
More foreign businesses have resumed production as scheduled and others are asking employees to work from home. Factories owned by Tesla Inc, Cargill Inc, Samsung Electronics Co and SK Hynix all resumed production across China on Monday.
China continues to be and will be the fastest growing global national economy, reaching over $17 trillion in 2019 and $27 Trillion in Purchasing Power Parity – which measures prices in different areas using a specific good or goods to contrast the absolute purchasing power between different currencies.
China is experiencing the greatest creation of wealth in human history. This wealth is being spread over a fast growing middle class, comprised of both entrepreneurs and workers, aspirational consumers and high net worth individuals. There are more people in China with a net worth of $500,000 than in Europe and North America combined.
Travel and consumerism in China is a way of life – a way to showcase ones growth, prosperity, achievements on the battlefield of professionalism and business. Why do Chinese shop in Paris when all of the same shopping is available in Shanghai? Because it is Paris! If you understand this – you understand why the Chinese travel and shop.
But Chinese travel and consumerism is much more than shopping. The fastest growing segments in global Chinese travel are FIT and business, not group. Younger Chinese are much more sophisticated travelers than their parents. They travel for business, they travel to go to school abroad, to visit global friends and family, to climb mountains, to go scuba diving, to taste local foods and learn wine making. Do we think this is going to change in the future? Yes. It’s going to only get bigger!
China has the macroeconomic tools needed to jumpstart the economy in the coming weeks. The same energy, organization and management that has been used to control the virus - to transport 15,000 healthcare workers to Wuhan in 48 hours, to build hospitals in days and convert expo centers to medical clinics - will be equally applied to restarting economic activity.
Chinese travel is a top 10 national industry. Chinese household expenditures now exceeds 40% of Chinese economic activity, nearing some $6.5 trillion in 2019. Economic growth and stability is a cornerstone to Chinese society and governmental achievement. Once the virus is controlled there will be no hesitation to China's stimulation of economic activity and continued growth.
Take a look at the Chinese stock and equity markets over the past week. They have rebounded as much is 8%, largely in response to China’s financial stimulus, but also as an acknowledgement that the economic future is sound. This is not only a testament to China’s will and capabilities but China’s ongoing promise to maintain economic stability and growth using all possible resources at its disposal.
China has great resources, including $3.1 Trillion in foreign currency reserves, over $1 trillion in investments held by the China Investment Company, and much more in RMB reserves that will be pushed into the economy as loans, credits and stimulus.
Speaking recently to a large travel reseller in Beijing, he shared with me that he's already been contacted by airlines, hotel groups and retail companies that are in the early stages of planning special sales and initiatives in the coming weeks, offering once-in-a-lifetime travel discounts, incentives and bonuses, all designed to get the voracious Chinese traveler and shopper back into the air and around the world.
On the macroeconomic side, China has already signaled its willingness to provide funding, loans and credit to industries of all sizes and making loans available to individual consumers. There will be national shopping weeks, specialized shopping days, consumer events and celebrations on a national scale that will dwarf what we have seen on the last November 11 – the 11-11 - singles day, which in 2019 produced $30.5 billion in sales – in one day. It will be done!
Many of our clients ask us what to do now? And there are some strategies that we recommend in the short term, including:
· Change Your Messaging From Selling To Sympathy: Turn your messaging into sympathetic outreach, letting China know that you care, that you are a friend, that you will welcome them in the future.
· Go Gray – Don’t Go Dark: Some organizations choose to stop all communications and simply go dark. We think it is better to communicate, after-all a large portion of China is on social media these days – they are searching, exploring and planning for their future travels.
· Organize Donations To Chinese Relief: Many international relief organizations accept donations that will be used for China relief.
· Go Virtual – push your online tourism experiences, augmented reality, video, interviews, make your destination personal – include messages of sympathy from your staff.
· Showcase Challenges Are Opportunities To Grow: Many destinations and enterprises have had to deal with great challenges in their history – share it, tell your stories of overcoming, be encouraging.
We are presently surveying our data base of 12,000 Chinese travel resellers regarding their views on the upcoming travel recovery and we hope to share the results in the coming days. The results will showcase the attitude of industry leaders regarding the recovery.
We forecast a V shaped recovery occurring by summer. The first segments of Chinese travel recovery will occur with FIT and business travelers. These are both the more sophisticated and demanding traveler segments from China. These segments are likely to be most able to quickly take advantage of discounts and incentives that will be offered in the coming weeks, as well as needing to travel for sales and exhibitions. By June these segments should be in the air and groups will follow by later in the summer.
This presents an opportunity for many travel suppliers – to reboot your marketing and sales approach – to focus more on FIT and business traveler, MICE, luxury and adventure tourism consumers. After-all these are higher spending segments and more likely to return travel in the future as compared to once in a lifetime groups. Reposition your messaging, welcome these new segments, involve your partners and develop product that is more suitable to the short term recovery from China.
No matter the time it takes, China will come back and when it does you need to be China’s friend and now is a great time to show your friendship.
If you have gotten this far in this essay – many thanks for your consideration.
See you next time somewhere around the world.
Regards to all,
Alexander Glos
CEO
China i2i Group
Shanghai - Beijing - Hong Kong