The Coronavirus Disease (COVID 19) outbreak has become a pandemic that affects global trade patterns and connectivity. United Nations Conference on Trade and Development (UNCTAD) predicts a global economic recession. On the global level, Micro, Small and Medium Sized Enterprises (MSMEs) are especially challenged to sustain their business operations due to restrictions on mobility internationally. According to International Labour Organisation’s Report on COVID-19 and the world of work: Impacts and Responses, despite the existing influence on the health of some of the MSME owners and hired employees, travel restrictions and quarantine measures in their home countries limit the trading capacities of the companies. Customers, in China and beyond, are also limiting their amount of purchase during the pandemic period. Both the demand and supply sides are challenging the operation of MSMEs.
The emerging Asia also faces immense pressure on the economic conditions. This has partially been resulted from the trade restrictions between the region and their biggest trade partners, USA and China (OECD).
ILO suggests that, large-scale fiscal and monetary policies are necessary to stablise the economy, while social protection mechanisms are also essential to mitigate the social impacts of the potential loss of employment, lowered productivity capacities of workers and the restrained consumption among workers and their families due to the reduced income.
Asian countries are discovered to have the fiscal leeway and the banking sectors are “well-capitalised”; however, MSMEs, which take up 90% of the region’s businesses, relying heavily on the monetary support the banks can offer during this special period. From March onwards, border controls are more severely imposed in Emerging Asia which affected the global value chain, and in turn, lead to particular hampering for the operation of MSMEs specialising on exports (OECD).
China’s support policies and easing measures for especially domestic and also international MSMEs are provided for the reference of MSMEs which export products to China and policy makers in other countries.
China’s measures to support domestic MSMEs and foreign MSMEs operating in China
To buffer the economic shock on the global scale, OECD encourages governments to remove trade restrictions to promote people’s confidence, provide short-term employment schemes for the unemployed, cash transfers to the self-employed and special support packages for SMEs in a bigger scheme of delayed tax payments and VAT reductions or deferrals. The State Council predicts that, Chinese economy will rebound in the second half of the year. China has imposed both demand and supply side support measures, following three key principles of “maintaining steady consumption and guaranteeing employment”, “combine fiscal and monetary policies”, and “utilising China’s finance base and facilitate effective, prompt and targeted support for MSMEs”.
On the supply side, Chinese government has implemented a series of easing measures, symbolic ones include:
Based on China Europe International Business School (CEIBS)’s first hand data and desk research data collected from China’s National Bureau of Statistics and Zhejiang MYbank, among all Chinese market actors, there are more than 90% being small and micro enterprises. Furthermore, averagely, every self-employed person provides additional 2.37 jobs. Since the outbreak of the pandemic, Chinese business activities have been influenced due to the slowed circulation of raw materials, labour productivity, logistics and sales. Around 70% of shops face difficulties such as being unable to operate normally or being forced to shut down in China due to COVID 19. To support domestic MSMEs to rebound, China’s Central Government and local governments have taken a series of cushioning economic measures.
Equipping privately owned SMEs with technological expertise: with the development of the pandemic, the Chinese government has recognised technology’s role in fundamentally revitalising businesses especially of small scales. NDRC announces that in October 2020, China is upscaling its investment in inclusive tech-innovation. Local governments are requested to increase their innovation investment in inclusive technology to support privately owned SMEs via nexus of banks and enterprises, government-led funds, technology and intellectual property subsidies and tech-finance. SMEs are also encouraged to participate in research projects at the national level: platforms such as the innovation centre for national industries, the innovation centre of national manufacturing industry, national research centres, the innovation centre of national technology shall support SMEs to take hold of national research projects which can capacitate them via “learning by doing”, as well as grant them the funds to develop technologies that befit their very unique demands (MOFCOM, 2020).
Technology supporting Work Resumption: On the supply side, the government supports Chinese MSMEs to identify alternative ways to resume work. As announced by the Ministry of Industry and Information Technology of the People’s Republic of China (MIIT), local governments are instructed to invest in their research and promotion of AI, Virtual Reality, Cloud platforms, internet of things and Fintech to support the local industries to function online. In addition, via MIIT’s database, businesses that encounter difficulties to resume operation are tracked down, and an One-to-One support mechanism is established. Experts share suggestions to the businesses via video calls and group chats on social networks. MIIT also research into the global pandemic situation with regard to the international value chains to prepare the domestic businesses.
Eased Value Added Tax rate: The Ministry of Finance announces that, from 1 March to 31 May, MSMEs in Hubei Province are not obliged to pay VATs; MSMEs in other provinces or autonomous cities in China are obliged to pay a lower tax rate of 1% on taxable sales revenue if their previous VAT rate was set at 3%.
Extending easing taxation policies for SMEs: to encourage banks and medium/small sized financial entities lending money to the SMEs, a policy in which defines that no taxation will be charged on the interests obtained by the financial entities by lending to the SMEs came out in 2017. The policy was supposed to be only functional until 31 December 2019, however, due to the COVID 19 Situation, the policy was extended to be functional by 31 December 2023 (State Administration of Taxation’s summary on all policies of taxation supporting the control of COVID 19 situation and rebound of Economy). In addition, based on evidence, the SMEs which have been influenced by the pandemic situation are eligible to extend their taxation payment deadlines. MOFCOM also requested all trade unions to return the subscription expenses paid for period 1 January 2020 to 31 December 2021 fully to all companies that are recognised as SMEs (MOFCOM, 2020).
Eased Utility Bill Payment Mechanism: MIIT announces that, for businesses that are not in the energy-intensive industries, 95% of the original price for per unit electricity used will be charged from February to June 2020. MOFCOM in October 2020 announces that this policy has been kept effective due to the ongoing pandemic situation.Off-season pricing of natural gas, water and electricity will be offered in advance. For MSMEs which cannot pay for their utilities during the pandemic, no penalties will be charged.
Banks’ targeted supporting measures: The Central Government has raised the line of credit for business loans with specific purposes to 350 billion RMB in commercial banks, specifically lending funds to MSMEs in the private sector. All enterprises in Hubei and MSMEs across China are not obliged to pay back their loans until 30 June 2020. A low interest rate of 2.5% is set for MSME’s loans. The Ministry of Finance also promotes provincial and autonomous municipal governments to distribute the government subsidies to the commercial banks and enable the provision of government subsidised loans for COVID-19 affected local businesses. In addition to the measures set out right after the outbreak of virus, on 1 June 2020, the guidance on strengthening financial measures to support SMEs was published, commercial banks are encouraged to switch the focus of their lending services from real estate, big scaled-enterprises to MSMEs. Five state-owned commercial banks have seen their rate of loan granted to MSMEs has risen by 40% since the outbreak. Provincial governments with sufficient capital are also encouraged to set up “ponds of capital” for risk compensation purposes when MSMEs face challenges incurred by COVID 19.The financial support policies have seen results: 3.1 million MSMEs have benefited from these policies. To extend the positive impacts for these small scaled enterprises, amid the ongoing global pandemic, Chinese Premier Li Keqiang announces in the State Council meeting on 21 December 2020 that the Chinese government will support and encourage banks to extend the period for MSMEs to pay back their loans. In the first season of 2021, for loans that have their pay-off period extended to six more months or more, the banks can receive a reward worth 1% of the loan amount. The government will also at the beginning of 2021 continue subsidising the banks to support the local MSMEs: for every loan to a MSME, the government will contribute to 40% of the total amount. The supportive policies may be extended depending on how the pandemic and the economic situation evolve (State Council, 2020).
Establish a data platform on agri-food market indicators during the pandemic: The Ministry of Agriculture and Rural Affairs (MARA) has developed an online agricultural rolling data platform timely presenting the sales, product-specific total supply and pricing trends in China and every province. It also provides contact details of agri-food producers/retailers, and businesses selling agricultural equipment and materials to facilitate domestic trade.
Ensure the provision of agri-food products during COVID 19: since late January 2020, the State Council re-enforces its “Vegetable Basket” Programme with an accountability system especially holding municipal governments responsible to ensure agricultural production and strict epidemic prevention in agricultural endeavours. To further this concept, utilising market resources both domestically and internationally, and therefore enhancing the quality of Chinese people’s livelihood, the State Council has announced on 23 December to adjust the import tariffs. From 1 January 2021 onwards, 883 kinds of goods can be imported on taxation rates lower than the most-favoured-nation rates of duty. Among these categories there are fruit products, but most of them are medical resources or products which are beneficial for environment protection (State Council, 2020). In October 2020, Mongolia joined the Asia-Pacific Trade Agreement. The State Council also announced that from 1 January 2021, certain Mongolian imports will be received on the agreed rates in the Agreement (State Council, 2020).
Guarantee the quality and security of food supplies during COVID 19: MARA has conducted quarterly monitoring of food security. MARA’s June 2020 data presents that for the first quarter of 2020, across all 31 provinces and autonomous regions in China, the qualified rate of all agri-food products has reached 97.9%; vegetables and fruits supply, meat products and seafood products correspondingly have 97.7%, 98.9% and 96.5% of them qualified.
Facilitate trainings on E-commerce especially for rural producers: MARA’s project “Internet + helping rural producers sell products to the cities” for the Rural Revitalisation initiative was first introduced last year in December. With E-commerce being provenly an effective business modality in China, ensuring business activities, empowering business resilience, the project is being promoted to capacitate rural producers during the special period. In the pilot phase, the project has been implemented in 100 counties which demonstrate particular production specialty or are counted as underprivileged. By the end of 2021, the project will be facilitated in all rural areas across China on successful piloting results. The State Council also has launched a strategic plan in July 2020 specifically to SMEs to enhance the digital capacity of their managers. A list of corresponding products and activities tutoring beginners to utilise modern technologies and online services for their daily operations and innovation (State Council, 2020).
Easy start-up process for new businesses: the State Administration of Market Regulation’s Business Registration Bureau announces that by the end of July 2020, there will be provided online services across China to allow businesses be easily registered: the official approval will not take more than four days. there will be maximum of four days for approving the registry (State Council, 2020). The government will especially support individuals from the rural areas to start up businesses by utilising resources within their reach; the administrative support will be conducted on county levels (China Daily, 2020).
Support foreign trade business by enhancing their credibility: in July 2020, China’s State Council started to ask Chinese foreign trade businesses to submit written pledges and go through inspections for standard compliance (China Daily, 2020).
Reducing procedural steps for foreign trade companies in gaining certificates: from October 2019 onwards, MOFCOM, GACC and CCPIT set out the policy that the Certificate of Foreign Trade Manager and the Certificate of Country of Origins, two crucial certificates of the traders, can be jointly applied and granted. This policy is aiming at shortening the time spent by the foreign trade businesses in repetitive administrative applications. 95% of the foreign trade companies newly applying for the certificates have been benefitted from this policy. In 2020, the policy is further promoted to the local levels as the provincial branches of the three central state organisations utilise their top-down communication mechanism and lay out plans to make sure every province entails the policy fully (MOFCOM, 2020). In August 2020, “one-step-sunshine” pricing mechanism is also implemented in some of the Chinese ports to ensure the transparency and efficiency of the pricing mechanisms across ports in China (State Council, 2020).
Supportive customs policies for global traders: The General Administration of Customs, P.R. China (GACC) announced on 13 March 2020 that, to ease the procedure for domestic and foreign exporters, businesses which have their cargo encountering difficulties to enter or exit China’s border, and have already applied for three times of short term extension, are now legitimate to apply for a maximumly six month extension of their entry or exit permit. They are permitted to bring their products into or out of China with a ‘Temporary Consignee/Consigner Permit for Exporting and Importing purposes”. The application of extension can be carried out on the “Internet + GACC” online platform. In addition, on 30 June 2020, GACC has published an instruction note on using the GACC mobile application/Wechat function for product clearance information updates. The application will also send out GACC’s newest policies regarding the custom procedures for exporters to China. From the second half of year 2020 onwards, MOFCOM, GACC and CCPIT would also collectively work on bettering the service provided on the China FTA Service Networks (http://fta.mofcom.gov.cn/ ) and CCPIT FTA Service Networks (http://www.ccpit-fta.com/ ) for domestic and foreign traders (MOFCOM, 2020). Training events for Chinese companies to fully comprehend and utilise FTAs would also be organised online once country wise FTA-specific guidelines are produced.
Customs in Guangzhou pilot the “market procurement mechanism for trade”: from January to July 2020, to support MSMEs in China specialising on foreign trade, Guangzhou Customs initiated the mechanism where the relevant MSMEs can procure their products for trade within a market under the supervision of the Customs, especially set up for suppliers; once products are ready for exportation, products of the same kind can share one holistic system of being certified and transported. This has been proven to reduce the time spent by MSMEs to apply for quality investigation and efficiently utilises logistic resources, lowering costs for the businesses. As for now, only certain products for exportation, including hardware products can be advantaged by the piloting mechanism, the Guangzhou Customs is initiating the system for other products such as processed food and cosmetics.
Explain easing custom policies with comparative charts: on 16 September, GACC renewed its inspection policies for various products exporting from China. As policy languages can be hard to interpret, GACC published web articles with comparative tables and summary of key “take-out” points for practical conducts so that exporters from China can de facto benefit from the easing policies (GACC, 2020).
Relocate agro-product sellers to temporary stalls to guarantee food supply & Market Reform: as new cases of COVID 19 were discovered in Beijing, tracing to the Xin Fa Di wholesale market, the largest wholesale market in Beijing and the Northern China, the market started to go on a complete lockdown on 13 June. All vendors have undergone the throat swab test for COVID 19. To guarantee the supply of fresh produce, Xin Fa Di’s produce supplies are relocated to several open areas and the Beijing government does not charge business operation fees to reduce the burden of the traders. Markets in other parts of China also have taken preventative measures and strengthened their health check of vendors (Produce Report, 2020). Xin Fa Di market is planned to be re-opened on 15th August, however, only partially, and the market will returned to full capacity by 10 September 2020. The lockdown has given time for the market to be reformed. From the re-opening day on, the market will not be opened to individual consumers, instead, only sells products to retailers. All sellers and buyers will be registered in a smart system on Wechat platform, so that the market can better monitor trade activities within it. The origins of the products, certificate of product qualifications, logistics information for the transportation of the products and so forth will be collected to make sure products are fresh and safe to be consumed. To make sure the reform does not create inconvenience for the previous customers who purchase products directly from the market, nearby Xin Fa Di market there is a new market with an area of 1000 metres squared developed to accommodate the needs of local residents. The reform of Xin Fa Di is regarded as a pioneer along the revolution of all Chinese conventional fruits & vegetable markets (Produce Report).
Developing a “Smart +” ecological system for consumption: while more people are switching to online shopping during COVID 19, the NDRC, together with other government agencies including MIIT, MOF and MARA are advancing the technological infrastructure across China’s urban and rural regions. They are preparing for all businesses, communities and commercial organisations to effectively develop “Smart Stores”, “Smart Street” and “Smart Commerce” for more efficient sales, purchases, acquisitions and investment. A “Smart +” environment, essentially, aims to respond to modern consumers’ need to timely connect their demand with the corresponding suppliers. In addition, “Smart Street” system will also capture households’ information and help the government to provide targeted social support for families in need.
Enhancing household income: lending out relatively more national debts and diversify the wealth management products while strictly invigilate the existing products to rule out potential risks.
TVET Education: Empower people who are influenced by the pandemic by providing corresponding continuing education programmes.
Improving product quality in the market: By utilising existing technologies, help businesses innovate to enhance the quality, environmentally friendliness and logistic efficiency of the products and services in China. For quality imports, the Customs Duty has been reduced.
Both as a demand and supply side measure to develop trade resilience during COVID 19, in June 2020, a master plan for the Hainan Free Trade Port was released. The Chinese State Council expect to develop Hainan as the largest economic zone, and to finish the establishment of the Hainan Free Trade Port in 2025 and bring it to a higher level in 2035. Major measures to develop the Hainan Free Trade Port and other major initiatives were launched (Two Sessions Report, 2021).
To help Chinese domestic and foreign business leverage full capacity of the policies, China’s central and local governments easing the compliance burdens the businesses encounter due to difficulties caused by COVID-19, China Briefing summarised a list of China’s support policies. The list is being renewed regularly for updated information sharing.
OECD summarises in their report on SMEs’ policy responses that, countries in general have followed the below sequential steps when they provide supporting policies for the domestic SMEs:
“1. Health measures, and information for SMEs on how to adhere to them;
2. Measures to address liquidity by deferring payments;
3. Measures to supply extra and more easily available credit to strengthen SME resilience;
4. Measures to avoid, or mitigate the consequences of, unorganised lay-offs by extending possibilities for temporary redundancies and wage subsidies;
5. Structural policies.”
In July 2020, China also supports its domestic businesses within the global trade arena to open up domestic market when facing challenges exporting products overseas. At the same time, GACC sets out policies to ease Chinese exporters’ taxation pressures, while simplifying the application process for business to apply for such benefits (GACC).
OECD suggests governments, to facilitate support for SMEs not only along the stream to compensate their loss of revenues, however, also to capacitate them on sustainable terms, so to expand their business potentials. At the same time, some countries identify cases where policies are late in implementation. Therefore, an effective Monitoring and Evaluation system is crucial for the support to be de facto provided.
By late May 2020, according to the Ministry of Industry and Information Technology, around 91% of Chinese MSMEs have resumed their business activities and nearly all large enterprises and projects resumed their business operations. China’s industrial output rose by 4.4% in May 2020 compared to that of 2019. Indicators aside, however, the different between the supply and demand has been continuing being expanded while the economic recovery strikes to take place. Chinese authorities now focus their attention to help the overall demand level rebound, although this is foreseen to take more time and efforts as policy assistance has more direct influence on the supply capacity in a market.
COVID-19’s impacts on (Agricultural) Trade with China
The pandemic situation has an eminent impact on China, the largest regional importer of fruits and meat products in Asia. Responsive policies and consumer behaviours have significantly impacted on agricultural exports from Mongolia, Cambodia, Lao PDR and Vietnam. According to data shared by China Chamber of Commerce of Foodstuffs and Native Produce (CFNA), China’s agri-food import volume is around 24.7 billion USD by the end of March 2020, generating a proportionate rise of 5.1% from last year. The rate of increase in import has been slower compared to last year’s. By November, China’s agri-food trade volume has reached 222 billion, risen by 8.2% in comparison to last year’s, among it, export value is 68.48 billion, fallen by 2.7%, and import value is 153.52 billion, risen by 13.8% (CFNA, 2020). To maintain a healthy trade cycle, however, GACC encourages quality products to be imported with increased volume into China, to enrich consumers’ baskets. By the middle of 2020, meat products and agri-food products have their import values being 109.5 billion RMB and 154.2 billion RMB, proportionally increased by 107.3% and 18.1% from the import values last year (China Finance). As for the trade of fruits, China has imported more than 1.02 million tons of fruit with a total value of 2.17 billion USD, indicating an 11% decline in volume and 8% rise in value compared with the same period of 2019. By import value from January to February, the top nine fruit categories were: fresh cherries (1.17 billion USD, +32% YOY), bananas (150 million USD, −14% YOY), fresh longans (128 million USD, −19% YOY), fresh grapes (97 million USD, −27% YOY), fresh dragon fruit (94 million USD, +66% YOY), fresh cranberries and blueberries (81 million USD, +21% YOY), fresh durians (66 million USD, −10% YOY), fresh peaches and nectarines (58 million USD, +30% YOY) and other fruits (48 million USD, +63% YOY). These nine main categories accounted for 87% of the total import value (Produce Report). As for import and export overview, by August 2020, China’s trade value has risen by 10.5% proportionately compared to last year, among it, 15.9% comes from export and 4% comes from import (GACC, 2020).
Based on the trade data of the first three quarters, China’s trade value has reached 23,120 billion RMB, which signifies an increase by 0.7% compared to last year’s same period; among it, export value was 12,710 billion RMB, rose by 1.8% and 10,410 billion RMB comes from import, fell by 0.6% compared to last year’s data (GACC, 2020). Throughout the year till the end of November, there has been found a 0.6% increase of trade value in 2020 compared to data in the same period in 2019 (CFNA, 2020). Reviewing back, the rate of increase for China’s trade value has been steadily increasing, being -6.5% in the first quarter, -0.2% in the second and rose up to 7.5% in the third (third quarter trade value: 8,880 billion RMB, among it 5,000 billion RMB for export, with an increase rate of 10.2%, and 3,880 billion RMB of import, with an increase rate of 4.3%) (GACC, 2020). One feature worth noting about the trade modalities in 2020 is that, the private sector has been playing a more significant role. In the first three quarters, Chinese privately owned companies together brought about 10,660 billion RMB of trade value, contributing to 46.1% of the overall trade value, rose by 4% in scale proportionately compared to last year’s private sector trade value. Specified to its import and export value, the private sector has also demonstrated significant increase: with a value of 7,020 billion RMB, it contributes to 55.2% of the overall export value in China in 2020; and with an value of 3,640 billion RMB, it has generated 35% of China’s imports by value. Thirdly, in terms of trading partners, ASEAN has become China’s top trading partner by value in the first three quarters of 2020, following it is the European Union, USA, Japan, and the Republic of Korea, the trade values are correspondingly: 3,380 billion RMB (consisting of 14.6% of China’s overall trade value in the first three quarters), 3,230 billion RMB, 2,820 billion RMB, 1,610 billion RMB, 1,450 billion RMB, risen by 7.7%, 2.9%, 2%, 1.4% and 1.1% respectively. Fourthly, taking a close look at the agri-products, oil, soybean and meat have seen rise in their import values; as especially for meat products, the import has seen significant rise with imported pork being 3,286,000 tons, increased by 132.2% in volume and 1,572,000 tons of beef, with an rise of 38.8% in volume (GACC, 2020).
In the short term, products entering the Chinese border need to undergo sterilisation, amid COVID 19, shipment congestion also takes place due to longer inspection time at the Customs. However, to ease the situation, GACC furthered its reform to simplify the procedure of declaration by utilising the online declaring modalities. Exporters who have high credibility levels or can in advance submit their taxation security payment and they are allowed to declare their products and submit their certifications online. Once the declaration is approved, the products can enter China and the exporters need to complete the holistic declaration process offline within 14 days after the online approval is granted (GACC). Despite the more strict inspection due to COVID 19, the overall time span for clearance has been reduced by 59.3% and 81.5% for importing and exporting clearance, in comparison to that of 2017. Averagely, clearance procedures for import takes 39.7 hours and that for export takes 2.3 hours (China Finance). By January 2021, the import hours have been reduced to 34.91 and export hours to 1.78; and GACC has promoted further e-customs strategies especially for certification granting and verification. GACC expects that more innovation over the customs platforms and reduction of service fees at the customs will be made possible in 2021.
China has also imposed more severe inspection on the cold chain in November 2020, out of 873,475 sampling imported goods, it was reported that13 were tested positive of COVID 19. Some people working along the cold chain in Qingdao, Tianjin and Shanghai were also suspected to have contracted the virus from handling imported cold chain packages. GACC has implemented control measure for eight overseas enterprises and six ships. On 9 November, the State Council Joint Prevention and Control Mechanism against Covid 19 also released a new plan to minimise the risk of virus transmission from imported cold-chain products. The plan states that exporting companies to China must provide disinfectant certificate of their products for entry (Produce Report, 2020). In addition, disinfecting certain fruit products may lead to damaged product quality and the custom inspection time has been extended due to more severe product assessment. In the long run, food security is likely to remain one of China’s main concerns. Therefore, new regulations and innovation will occur within China’s custom processes and e-commerce platforms. Traceability of the imported products presents rising significance for market and border entrance into China and the Chinese market, and potentially, will uphold the companies’ reputation in terms of safety and quality of their products. In January 2021, GACC has re-announced the scientific recognition that products, especially along the cold chain have the potential to carry Covid 19 virus around, therefore, inspection and quarantine procedures have been systematised in China to evaluate the “importability” of the products in terms of risks of Covid 19 virus at the Chinese border. China also aims to exchange and collaborate regionally and internationally to ensure high safety level of the imported products to and from China (GACC, 2021).
To summarise the responsibilities of Chinese governmental departments and domestic businesses to face the potential infectious challenges along the cold chain in a nutshell (MofCom, 2020, Nov):
- The GACC is in charge of the actual inspection of imported products along the cold chain;
- MoT is in charge of inspecting on the containers and checking out the certificates of the imported products to guarantee the hygiene of the goods;
- The Monitoring and Evaluation units are in charge of verifying whether the importers are qualified with the Covid-specific disinfectant certificate;
- Local governments are responsible for second round disinfecting of the imported products;
- Domestic businesses which import products are required to cooperate with the government agencies in providing authentic traceability information of the imported goods.
Short term impacts on trade with China:
1. Impacts on Cargo Transportation in China
|Air Freight||All airports are operational for commercial flights (including international flights from Wuhan). Due to the record number of charters planned to China, the air freight capacity is now capable of meeting the market demand. PVG and CAN airports are in bad congestion.|
|Sea Freight||All major ports and terminals in China are open. Due to the severe repercussions of the COVID-19 outbreak globally, vessel schedules are strongly impacted as significant blank sailing was experimented in May. Spacing issues are prevalent. Barging services are back to normal.|
|Rail||Railway services have come back to normal.|
|Road||Inland trucking service is back to normal.|
|Logistics||Warehouses are fully operational, back to normal.|
Table Adapted from: Bansard International’s Field Research on 21 May 2020
Since Beijing discovers new cases of COVID 19 in June 2020. Meat products and seafood products are undergoing especially strict inspection at Chinese Customs. GACC requires that exporters need to sign certification statements to guarantee that their products are free of SARS-CoV-2. All sample imported food products inspected from 11 to 17 June 2020 were tested negative of the virus. Imported fruits have all undergone random inspection, according to a source at Shanghai’s Huizhan Fruit and Vegetable Market, the average inspection time for one batch of fruits is 6 hours. However, maximumly it takes 1-2 days of inspection time. To prevent direct contacts with personnel from the Xin Fa Di Market, logistic companies also proactively curtailed shipments to Beijing, Shanghai and Guangzhou markets also face challenges outsourcing their products. In addition, as road transportation vehicles are required to apply for a “Cargo Transportation Series Number” for importing/exporting purposes to and from China, to enhance the efficiency of cargo transportation, GACC announces in September 2020 that, one road vehicle can transport cargoes for multiple orders, and apply for one “Cargo Transportation Series Number”. On the other hand, when one import/export order transports cargoes via multiple vehicles, one unified “Cargo Transportation Series Number” can be applied and utilised, and the vehicles need to transport the cargoes into/out of China at the same time (Ficientglobal, 2020). To compensate the longer custom inspection time, MOFCOM aims to promote more efficient transportation during the pandemic, overnight transportation and collective transportation are suggested for essential products. In addition, tolls for road, sea and air freight are also lowered to support businesses’ logistics during the special period (MOFCOM, 2020). On 23 Nov, Shanghai’s cargo container was reportedly contracted virus to two airport workers; since then, the virus prevention measures in Pudong Airport, especially in its cargo handling area were upgraded. Cargos entering the Chinese border therefore undergo more strict disinfection procedures. In addition, on 16 Nov, Shanghai’s municipal government also started the practice pf transit inspection warehouses, which means that, imported cold-chain foods which are defined to be of high risk, need to first undergo general customs inspection and disinfection, and then be “admitted to private or public transit inspection warehouses for nucleic acid testing and disinfection of outer packaging”. This situation has been impacting the efficiency of logistics for the recent time being (Produce Report, 2020). On top of the longer disinfection time in China for imported products, Covid has led to a rise in global shipping price due to the shortage of cargo shipping containers.This is caused by the slowed down speed for emptying and turnaround of refrigerated containers. This impacts significantly on cross-country agricultural supply chains. This situation was initiated from around February 2020, and got intensified from November 2020 onwards. All main ports in and beyond Asia can be seen to operate in full capacity, however, each port is still under significant pressure with more strict inspection measures imposed on imported products (Produce Report, 2020). as the shortage of labour and equipment act as accelerating factors. This situation across the international agricultural supply chains, as foreseen by the Produce Report, will be prolonged to impact on major ports till the Lunar New Year time in February 2021 (Produce Report, 2021).
2. The temporary closure of border gates: from the inception of COVID 19 to the end of February, some of the border gates between China were temporarily closed. China’s import procedures have come back to its convention in March, although the compulsory sterilisation of products and vehicles normally extends the lead time by one or two days.
3. The lack of personnel at the Customs during COVID 19 potentially slows the product inspection procedure. As mentioned before, to ease the importing and exporting procedures, GACC allows businesses which have applied for three times of extension of their exit/entry permit to extend their granted permission to maximumly six months.
4. Supporting policies during the Customs Inspection: Shen Zhen Customs announces that to ensure efficient inspection of cargo, they first prioritise inspections over medical supply, necessary commodities, fresh produce and other products which are more prone to expiration. Second, new innovation is also facilitated, quality machine has been implemented for faster inspection procedure: the GACC targets at enhancing the kinds and volume of produces being inspected solely by machines. Third, for specific Chinese provincial and municipal Customs, cargos with detected defaults, after undergoing risk analysis, can be withdraw by their exporters before the application for withdrawal is submitted (Shenzhen Customs, 2020).
5. As COVID 19 virus was detected from some of packages of the products imported into China, China has strengthened its control over the cold chain transported food safety. On 8 September, the 2020 Meat Industry Development Conference took place in Qing Dao, GASS announces that by 7 September, GACC has adopted random sampling method to investigate the production sites of 76 meat, dairy, seafood and frozen fruit businesses across 30 countries via videos (GACC). However, it is also scientifically suggested that, positive Covid virus on cold chain packages may not be transmissible if they are not active (Produce Report).
6. China’s quarantine policy during COVID 19 also stimulated higher demand of meat products for Chinese consumers. The Ministry of Commerce of the People’s Republic of China (MOFCOM) published The Notice to actively import products to tackle related challenges caused by the Coronavirus Disease on 3 February 2020. MOFCOM especially denotes to enhance the supply of meat via quality imports. In August 2020, the State Council announces to further enhance the imports of quality meat, dairy and oil products.
7. The spring ploughing period has to an extent been influenced by the COVID 19 outbreak. Quarantine policies especially at the beginning of the epidemic have disrupted the production of agricultural goods. In addition, China’s National Statistics Bureau reports that swine flu in 2019 has led to the smallest swine population in China in 25 years. Therefore, at the beginning of 2020, the project foresees that throughout the year, China might need to rely significantly on foreign supplies of agricultural products.
8. China’s provides equal support policies for domestic businesses and foreign business operating in China. Foreign businesses are supported on one-to-one basis when they face difficulties to resume operation. Technical wise, MOFCOM supports foreign business in China which are facing difficulties by setting up online marketing, communication and contracting pathways. Financial wise, MOFCOM aims to ease their daily operation via the reduction of tax, low interest rates for loans and eased utility bill payment mechanisms.
9. Research found out that, consumers in China, likewise in other countries, have gone through a consumption pattern of bulk buying to rising bulk purchase, together with consumer preference shift to purchasing products that are reputationally beneficial for people’s immune systems, such as oranges and lemons.
10. In the late June 2020, after WHO published its guidance for food business, based on the situation of COVID 19 and the code of conduct for enhancing food safety, the GACC first translated the guidance into Chinese, and produced relevant guidance videos for Chinese speakers domestically and abroad to follow the guidance when producing or transporting food products. They then officially sent out letters to the embassies of their importing countries, and invite them to also make sure their exporting food businesses are following the WHO guidance for guaranteeing safe food imports. The guidance is also translated into Chinese.
11. The wholesale prices have been on the fall in China since the pandemic started. According to data released by MARA, five domestic fruits have seen a fallen price of 11.7% compared to that of 2019. This is because of the stagnated consumer demand. Data from the National Bureau of Statistics reports that, in 2020, there was a 6.8% fall in the first quarter GDP in China compared to the year before, marking a first quarterly shrinkage of the China’s economy since 1992. Imported fruits, along with the trend for Chinese customers to spend less, is much unlikely a must-have item in China. Young people in China, which have been the primary customers of imported fruits, have finally welcomed the time where the pricing of their desired imported fruits significantly drop, yet they face pressures to have reduced income in the special pandemic period (Produce Report). In addition, COVID 19 led to a fall of value in the RMB, this further curtails Chinese consumers’ buying power, imposing direct influence on import volume (Xinhua Net). Overall, the international trade by value has fallen by 9.6% while net export by value fell by 15.9% and import by value fell by 2.4% till February 2020 compared to that of the year before (Xinhua Net).
12. The pandemic has led to falls in the sales volume and pricing for fruit especially during the first half of the year; however, special occasions such as the Mid-Autumn Festival + The National Day in China (1st Oct) has rejuvenated the fruit markets. For the special joint festival day, during the pandemic especially, Chinese people shop for fruit giftboxes, which are believed to offer multi-vitamin and gift them to their family members. This sybolises that reviving potentials are to be stimulated in alike occasions such as the New Year and the Chinese New Year in 2021. The underlying reason for the peak of fruit gift box sales also involves the increasing spending power of Chinese people and their enthusiasm towards imported fruits (Produce Report, 2020).
13. in January 2021, several cities and regions in Liaoning, Heilongjiang, Hebei provinces and Beijing have been identified as High Risk Areas. To avoid more severe transmission of Covid 19 virus, Chinese central and local governments encourages all citizens to stay at their current cities/regions to celebrate the upcoming Chinese New Year. Unless the pandemic situation gets eased within the next two weeks, a significant amount of travelling during the most popular festive season will be reduced in China this year. The peaking consumption of meat and fruit products may see difference with less family-wise celebrations going on this year (China Health Daily, 2021). At the same time, despite the strict hygiene routine food suppliers need to go through when transporting their products to the central food markets in the high-risk areas, these markets are highly accessible to guarantee sufficient supply of food towards citizens living inside these areas. The demand for food products in China overall, is not influenced amid the situation (Produce Report, 2021). MofCom, from a top-down perspective, works to enable the vegetable, fruit and meat supply for people during the Chinese New Year to prevent the potential price increase as except for the conventional food storage for festivals, some Chinese people aim to prepare ahead in case of any potential lockdowns. The pricing of the food products in general still encountered a moderate level of increase with the mounted demand during the festive season. In March, the pricing levels for meat and vegetables have witnessed a scaling down averagely. However, seasonal fruits such as oranges, watermelons and pears still see a slight price increase (MofCom, 2021). In addition, the E-commerce platforms in China are encouraged to stay functional during the Chinese New Year season to ensure that people can access to sufficient food and necessities during the holidays in which most physical shopping entities are closed (MofCom, 2021). NDRC in China also works to ensure effective transportation facilities for food deliveries, although the geographical factors of the transportation facilities influence such stability to an extent (as described in further details below). However, starting from 22 Jan 2021, the rise in price of agricultural food has been prevalently seen. For example, in Beijing Xin Fa Di Market, the weighted average price for vegetables has risen by 45.64% from the same period’s in 2020, every kilo of vegetables costs 4.18 RMB, in comparison to 2.87 RMB per kilo last year. Despite the aforementioned reasons for the price increase for foods, there are three other additional factors. First, around 40% of the food delivery trucks are from companies located in Xingtai and Shijiazhuang, the two cities which have been recently influenced by Covid 19; due to the mobility control, these food delivery trucks have been restricted to exit the two cities and therefore a low supply of the transportation tool for the food supply is prevalent in the current season. This situation has led to a rise in price for the delivery service, mounting up the fixed costs food suppliers need to pay for. Moreover, the severe temperature decrease across China in January 2021 has influenced the amount of food supply, the food supply in Beijing Xin Fa Di dropped to 50% of its conventional yield. Finally, the food suppliers have perceived that there is further potential for food pricing to rise, and they save up some of their supplies for food species which are more prone for storage, therefore leading to a low supply and rising price trend in the food market, especially for products such as garlic, potatoes, and cold chain products. In addition, certain fruits, such as watermelons, tangerines, apples have seen their prices fall by 2.8%, 2.7% and 1.9% correspondingly by the mid of January 2021 compared to that of last period’s (MofCom, 2021)It is predicted that, with Chinese governments implementing measures to help ensure people can access sufficient food products with reasonable pricing, alongside of the gradually increasing temperatures, after the Chinese New Year, the pricing for fresh produce sees possibilities to go down to the level of last year’s (Produce Report, 2021). In early February 2021, the price increase rate for agri-foods in general has already decreased (MofCom, 2021).
In addition to the agricultural trade, the most influenced Chinese imports encompassing products which required factory processing, and capital goods such as electrical machinery. Overviewing both domestic and international commercial activities, China’s most influenced sectors by COVID-19 include agriculture, logistics, textiles and the businesses producing raw materials (World Economic Forum, May 2020).
Long term impacts for trade with China:
In the long run, the Ministry of Agriculture and Rural Affairs (MARA) expects that relevant ministries and agencies like the General Administration of Customs (GACC) as well as Chinese consumers are likely to pay more attention on food safety and health during and after COVID 19. On 29 May, MARA sets out its “Salient Sword” Action Plan for Food Security in China. The “Salient Sword” Action Plan aims for the food market and producers in China provide the “security from the tip of tongue” to consumers. The Action Plan along the chronological line is of four stages, with provinces and autonomous regions first make their customised plans for supervisory systems and food security measures across the production, processing and retailing of the local food products. Then two implementation stages will consecutively be carried out with an emphasis on strengthening the supervisory systems to guarantee secure fruits and vegetables, meat products and seafood products are provided in the domestic market and for export purposes. The secure use of additives is one of the focuses in the action plan, via the facilitation of qualified sanitary and phytosanitary measures on products produced, offered in the market, imported and exported. In November and December 2020, MARA will review the implementation of the Action Plan and to set out further measures for sustainably guaranteeing food security produced and consumed in China. In addition to the policy requirements, since due to the Covid pandemic more customers in China prefer to be informed of the production and logistics information about food products before they place a purchase, level of hygiene of food products from production till delivery modality all start to augment in their importance. The project (SRECA) expects that this situation also has placed significance on an efficient tracking system and strengthened credibility of food security certifications for both domestic and imported products.
More advanced monitoring measures for customs procedures and retailing are being mainstreamed into the long term practices: China’s orientation to connect its many sectors via big data and to realise the automation of the entire clearance process is also indicated in reforms of the GACC. During the required quarantine periods, e-commerce and e-finance have played essential roles to ease purchase power of Chinese consumers and more importantly provide in-time medical supplies for hospitals and households (MOFCOM). On 1 August, China International Trade Single Window has made it possible that the China Inspection and Quarantine Certificate of Entry Commodities can be applied for online, the procedure of approval is also trackable on their webpage. An online certificate is granted once the application is approved (Step-by-step application procedure). The certificate can be downloaded as a PDF; however, companies are suggested to verify whether their specific commodities can submit electronic certificate when exporting products into China During COVID 19, some Chinese provinces have also seen rapid innovation in local e-commerce platforms to establish efficient logistics mechanisms, and no physical contact delivery models for hygiene purposes (e.g. Henan Province’s practice, MOFCOM reports). In addition, GACC is piloting the employment of small scaled “working station” houses where CCTV over all security inspection measuring counters feed back to; when products which may carry virus enter in Chinese border, they can be transported to the “working station”, scientifically re-examined and sanitised efficiently. The piloting sites are firstly established in Nanjing, they are designed to be movable and easily replicable, to accommodate situations when quantity of products need to be examined at site, and if more stations are discovered to be necessary. By September 2020, the stations have received positive feedbacks from the technical personnel in Nanjing GACC (GACC, 2020). During the inception phase of the epidemic, people in China have reduced their consumption both online and offline. The consumers who only had 20% of their shopping done online, however, had an increase of their online shopping proportion due to their intentions to stay indoor or because of self-quarantine policies. Among these consumers, people who had less than 10% of their purchases made online saw a particular sharp rise. The rate of online shopping saw a steeper rise three months after the outbreak of the epidemic. Research foresees that, in the long term, online shopping as a trend will continue to rise within China. More and more consumers who were ‘light users’ of online shopping platforms are switching their habits from offline to online; the previously ‘heavy users’ of the platforms will be more receptive of newly developed shopping platforms and stimulate further innovation within the online shopping industry (iResearch, 2020). MOFCOM in May has established a monitoring and evaluative system of Chinese businesses providing services and products online to investigate into the needs of Chinese e-commerce industry, provide relevant infrastructure and prevent misconducts in the online trading environment.
On 25 February, the first inbound fruit train cargo, line 24502 of China has transported six refrigerated containers of 156 tons of dragon fruits from the city of Dong Dang in Vietnam to the port of Pingxiang, Guangxi, China. The opening of the rail service symbolises more timely transport and larger capacity of cargo between China and the ASEAN countries. This is also the first time that Vietnamese fruits entering the Chinese border via rail at Pingxiang. The cost of clearing customs via rail is more favourable for the Vietnamese exporters compared to the conventional road transport. In addition, the entire export processes, including customs clearance only takes around two days. Earlier in 2020, due to travel restrictions, the sales of Vietnam’s fruits to China had been highly influenced; the newly developed rail service indicates opportunities for Vietnam’s exports to China (Produce Report). From the fruit and meat producers or sellers’ point of view, online channels open doors to alternative arenas for their businesses to resume sales. However, only a small percentage of them are aware of how to use the channels and the utilisation of the channels remain low. There foresees a delay for domestic and international fruit producers and traders to get accustomed with the digital methods. In addition, China’s current cold chain still faces challenges to guarantee the freshness of the fruits/meat ordered via internet channels (Produce Report). Despite of being a new grocery shopping trend, with the pandemic continue to influence people’s day-to-day life, before the Spring Festival comes in 2021, big B2B and B2C platforms in China selling fresh agri-foods have gathered significant investments, Chinese e-commerce channels for agri-foods, is expected to be enhanced in terms of its logistic stability, food quality, food security, storage hygiene and also product varieties (Produce Report, 2020, December).
In August 2020, the Chinese State Council also encourages public and private investment to develop service business on cross-border e-commerce, overseas warehouse and international logistics services, to shift the import modalities to a more virtual and integrated fashion. This may lead to varied trading patterns between exporting countries and China (State Council of China). Since the pandemic outburst, e-commerce has become a means to shorten the food supply chain, along which producers can directly be connected with customers. With more and more customers switch from offline to online modality of their grocery shopping, fresh marketing solutions such as live broadcasting of agri-food plantation, packaging and display of food quality enable agri-food sellers to expand their customer base via cost-efficient bridges. Recognising these new marketing and sales modalities is crucial for agri-food exporters to China; utilising these new solutions to display their unique selling points may also be an effective accelerator for their exportation.
In addition, in a symposium on economic and social work in Beijing, on 24 August 2020, Chinese president Xi Jinping reiterated the new development pattern for the Chinese economy: to open up a “dual circulation” system where the domestic and international markets can co-play and enhance the capacity of each other. He emphasise that, during and post to the special pandemic period, China will provide a broader market access for imports. Raising the level of opening-up is the forward looking strategy for China across various product markets including fresh produce and innovative technologies (China Daily, 2020).
The Covid situation has also resulted in strengthened trade relations among Asian countries. As mentioned before, on 27 September, MOFCOM announces on the China-ASEAN Expo Release Meeting that, according to data of the first three quarters, ASEAN has become China’s biggest trade partner in 2020 (CAEXPO 2020). The trade volume between China and ASEAN countries has reached 3,380 billion RMB in the first three quarters of 2020. The 2020 Regional Comprehensive Economic Partnership (RCEP) Interim Ministerial Meeting took place on 14 October in Vietnam via virtual modality, ASEAN countries, China, Japan, Republic of Korea, Australia and New Zealand attended the virtual meeting, and the meeting has reached the agreement that RCEP will jointly accelerate the economic development of other member countries, also to together strengthen the regional economy through effective trade practices and investment especially during and post to the Covid 19 pandemic (MOFCOM, 2020). RCEP was also signed on 15 Nov 2020 by ministers from the 15 countries, marking that the world’s largest plurilateral free trade agreement has been reached (The economist, 2020). Being signed post to the pandemic, the agreement has especially looked upon to stimulate regional integration and help trading in goods and services, investment, economic and technical cooperation prosper; and such an agreement, is foreseen by Chinese MOFCOM to facilitate faster economic recovery in the post-Covid 19 era (Sina, 2020). Although the materialisation of RCEP is expected to take years, RCEP can stimulate potentiality of regional economic cooperation by integrating the regional supply chains, simplifying the “countries of origin” procedures, aligning the procedures of custom inspections and technical standards of products/services across the Pacific Asian region (MOFCOM, 2020). To fully utilise the RCEP agreement for more efficient trading partnerships with China, the project suggests partnering countries to stay upfront with the newest policy updates intrigued by RCEP and to disseminate relevant knowledge to the domestic stakeholders involved, especially ones from the private sector. RCEP’s gradual tariff reductions and rules of origin have yielded early impacts to promoted the trade of manufactured goods, further impacts on other goods, incl. the primary agri-goods are to be continuously monitored. (Two Session, 2021).
Agri-businesses and COVID-19
To assess the impact of COVID-19 on agricultural and food processing industries, UNIDO Investment and Technology Promotion Office (ITPO) Germany, DLG – the German Agricultural Society and SmartHectar Innovation carried out online and telephone surveys among 800 companies from the food- and agricultural sector with business activities in African and Southeast Asian markets. Most of the survey participants were SMEs headquartered in Europe, and one third of the participants represent larger corporations. Two thirds of the participants generate most of their turnover on foreign markets. The survey results can reflect the key concerns, strategic orientations and impacts on the global agri-food value chains with a focus on the African and Southeast Asian markets (Summary Report).
Overall, 72% of the surveyed companies consider the pandemic being the biggest challenge for their business, in comparison to other challenges; among companies located in Africa and Southeast Asia, a high rate of 93% of them consider the pandemic to be their biggest challenge. In terms of the scale of the companies, SMEs in Asia and Africa consider them to be 10% more affected by the pandemic in comparison to agri-businesses in Europe or bigger scaled companies.
In terms of specific impacts imposed by the pandemic, sales was discovered to be the most affected sector within the business, with business development and marketing ranking the 2nd and 3rd impacted areas. Despite the challenges, the long-term, strategic outlook of most companies remains positive: around 10% of the surveyed companies have considered layoffs or closing down part of their businesses in foreign markets; Holistically, the tendency to expand to new areas of sales, and exploring new markets present to be high, correspondingly 48% and 47% of the surveyed companies shared their willingness to do so. In the long term, agri-food companies prominently consider to diversify their product portfolio and utilise the benefits of digital platforms; more than 50% of the companies are willing to leverage new technologies for company portfolio updates. This points out clear directions of preferred support for agri-business companies. However, larger scaled companies still present more willingness to reform their product categories and sales modalities, in comparison to the SMEs. Adjusting product portfolios A high percentage of 57% of all surveyed businesses believe focusing on their core business is the key path to face the challenges posted by the pandemic. In addition, around one fourth of the respondents consider face-to-face contact cannot be substituted by digital commercial modes, this demonstrates the lasting importance of platforms such as trade fairs and conferences as commercial networking opportunities post to the pandemic.
COVID-19 also imposes the slowing down tendency of internationalisation of the agri-food businesses. Around 20% of the larger scaled companies consider shifting their focus to the domestic market. Especially in Africa and Southeast Asian countries, only one third of larger companies and a quarter of all surveyed companies consider international expansion to be the right strategy. However, in Europe, more than half of the SMEs see opening new markets and continue with international expansion to be their strategy facing the crisis.
Despite the challenges facing the agri-food businesses, African and Southeast Asian markets continue to be regarded as important agricultural markets which can yield high growth. Only 6% of the surveyed companies who previously invested in these markets consider reducing their commitment. For companies targeting at these markets, about 90% would opt to increase or maintain their market presence there in the next 1-3 years.
Looking ahead, companies, despite their scale, are suggested to be open in front of changes either internally along the technical capacity, or externally for new market explorations. In addition, trade and sector-relevant policies are considered crucial to ensure resilience within businesses.
SRECA will continue to closely monitor the COVID-19 situation regarding impacts on agri-food MSMEs in the Cambodia, Lao PDR, Mongolia and Vietnam and their trade with China.
To access further information and online courses on international organisations’ analysis of COVID 19 and relevant policy suggestions for MSME support, China’s supporting policies to pandemic influenced business, country-specific logistics during the pandemic and trading with China during and post to COVID 19, please see the following links for reference: