Mon, Feb 24, 2020 page15

• Millions of Chinese firms face collapse due to virus

  • Bloomberg
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  Brigita, a director at one of China’s largest car dealers, is running out of options. Her firm’s 100 outlets have been closed for about a month because of the COVID-19 outbreak, cash reserves are dwindling and banks are reluctant to extend deadlines on billions of yuan in debt coming due over the next few months.

  There are also other creditors to think about.

  “If we can’t pay back the bonds, it will be very, very bad,” said Brigita, whose company has 10,000 employees and sells mid to high-end brands such as BMWs.

  She asked that only her first name be used and that her firm not be identified, because she is not authorized to speak to the press.

  With much of China’s economy still idled as authorities try to contain an outbreak that has infected more than 75,000 people, millions of companies across the country are in a race against the clock to stay afloat.

  A survey of small and medium-sized Chinese companies conducted this month showed that one-third of respondents only had enough cash to cover fixed expenses for a month, with another third running out within two months.

  While the Chinese government has cut interest rates, ordered banks to boost lending and loosened criteria for companies to restart operations, many of the nation’s millions of private businesses have said they have been unable to access the funding they need to meet upcoming deadlines for debt and salary payments.

  Without more financial support or a sudden rebound in China’s economy, some might have to shut for good.

  “If China fails to contain the virus in the first quarter, I expect a vast number of small businesses would go under,” Beijing Zhonghe Yingtai Management Consultant Co (北京中和應泰財顧) analyst Lu Changshun (呂長順) said.

  Despite accounting for 60 percent of the world’s second-largest economy and 80 percent of jobs in China, private businesses have long struggled to tap funding to help them expand during good times and survive crises.

  Support from China’s banking giants in response to the outbreak has so far been piecemeal, mostly earmarked for directly combating the virus.

  Industrial & Commercial Bank of China Ltd (ICBC, 中國工商銀行), the nation’s largest lender, has offered relief to 14,000 small businesses, or about 5 percent of its small business clients.

  In an e-mailed response to questions from Bloomberg News, ICBC said it has allocated 5.4 billion yuan (US$768 million) to help companies fight the virus.

  “We approve qualified small businesses’ loan applications as soon as they arrive,” the bank said.

  As a group, Chinese banks had offered about 254 billion yuan in loans related to the containment effort as of Feb. 9, according to the banking industry association, with foreign lenders, such as Citigroup Inc, also lowering rates.

  To put that into perspective, China’s small businesses typically face interest payments on about 36.9 trillion yuan of loans every quarter.

  Stringent requirements and shortlists restrict who can access special loans earmarked by the central bank for virus-related businesses, while local governments and banks have imposed caps on the amounts, people familiar with the matter have said.

  A debt banker at one of China’s largest brokerages said that his firm opened a fast lane to ease debt sales by businesses involved in the containment effort, with borrowers required to prove they that will use at least 10 percent of the proceeds to fight the disease.

  That is of little help to a car dealership.

  Brigita, whose firm owes money to dozens of banks, said she has so far only reached an agreement with a handful to extend payment deadlines by two months.

  Many of China’s businesses were already grasping for lifelines before the virus hit, pummeled by a trade dispute with the US and lending crackdown that sent economic growth to a three-decade low last year.

  At most risk are the labor-intensive catering and restaurant industries, travel agencies, airlines, hotels and shopping malls, Lianhe Rating (聯合資信評估) has said.

  China’s economy is likely to pick up quickly after the virus is contained and stage a “V-shaped” recovery, a senior central bank official has said.

  The “sound” fundamentals of the domestic economy remain unchanged in the medium to long run, despite a short-term slowdown due to the epidemic, People’s Bank of China Deputy Governor Chen Yulu (陳雨露) wrote in an opinion piece in the Financial Times on Thursday. The central bank summarized the column in a separate posting yesterday.

  “China has sufficient policy space to support steady economic growth. China is one of the few major economies in the world that have maintained normal monetary policy,” Chen wrote. “Equipped with a rich policy toolkit, China is capable of coping with various uncertainties.”
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