Now that U.S. retailers have shifted their focus to unlocking rather than locking down, it’s worth revisiting the only economy that has been shattered by COVID-19 and then restored: China. Bottom line, if the U.S. recovery is to mimic the best parts of China’s recovery, the shift to digital will lead the way.
By most accounts that recovery has been satisfactory from the standpoint of retail openings. About 80 percent of restaurants and more than 90 percent of brick-and-mortar retailers have resumed business, according to China’s Ministry of Commerce. But when it comes to information on consumer spending, the jury is out. The Chinese government released numbers that showed a 15.8 percent drop in retail sales for March, lower than the 20.5 percent during the first two months of the year as the coronavirus was identified and then tore through the country’s central province.
The government was bullish on April sales, but that estimation was disputed on some fronts. However, one thing observers are almost unanimous on is the importance of digital commerce and infrastructure. According to the Financial Times, “Hopes of a consumption rebound are … being dashed by a second wave of closings of recently reopened malls, movie theatres, bars and other establishments. Such Shanghai tourist attractions as the Oriental Pearl Tower and the aquarium also reopened in mid-March only to suspend operations again on March 30, apparently at the behest of authorities fearing a resurgence of COVID-19 infections.”
According to the report, “About 60 percent of operators of large malls see sales dropping around 30-70 per cent on the year for the first quarter of 2020, with virtually no members expecting growth, a survey by the China Chain Store & Franchise Association found. Meanwhile, roughly the same percentage of online retailers see sales holding steady or growing.”
That digital promise was also reinforced by the World Economic Forum (WEF). Its economists are attracted to digital commerce as a foundation of the post-COVID-19 recovery for several reasons. First: the opportunity for innovation is greatest in digital business models. Second, the digital infrastructure has been underutilized by most every nation. And third, digital commerce can withstand another pandemic.
“Beyond new business models, the digital revolution has the potential to change traditional ways of conducting business,” says a report on the COVID-19 crisis from the WEF. “Local enterprises may adopt various digital services to reduce obstacles caused by physical barriers, simplify supply and value chains, and provide speedy delivery of goods and services. A precursor to achieving such investment are policies and measures, including telemedicine, mobile banking and online sales, that encourage adoption of digital features to conduct business.”
According to an International Monetary Fund (IMF) briefing from April 15, China may actually end the year with a slight uptick in its GDP. It would actually be higher, it says, if the COVID-19 crisis was isolated to its economy, which it obviously has not. The IMF expects the first quarter contraction in China to be severe. But it has gradually normalized, and is actually held back at this point by the fact that every other economy in the world has been hindered by lockdowns and retail closings. Because the Chinese economy has “policy space” to support a recovery, it is expected to return to close to normal relatively quickly.
For other economies, including the U.S., IMF economist Gita Gopinath supports current financial policies.
“The large, timely and targeted fiscal, monetary and financial policies already taken by many policymakers have been lifelines to households and businesses,” she says. “This support should continue throughout the containment phase to minimize persistent scars that could emerge from subdued investment and job losses during this deep recession. Policymakers must also plan for the recovery, as containment measures come up, policies should shift swiftly to supporting demand, incentivizing from hiring and repairing balance sheets on private and public sectors to aid the recovery.”