The Covid-19 lockdown policy in China is a ‘double killer’ for online and offline businesses

The Covid-19 pandemic that broke out in several major Chinese cities, causing closures in Shanghai and Beijing, has been a “double killer” affecting online and offline businesses. JD.com CEO Lei Xu said.

As China adheres to its strict COVID-19 prevention and control measures, Xu told analysts during a conference call that this year’s outbreak has caused greater damage to people. consumption and supply chain compared to any of the previous two years.

Both online and offline businesses were hit hard, while economic powerhouses such as Beijing, Shanghai and Shenzhen were crippled by strict lockdown measures to varying degrees, Xu said. each other this year. “The pandemic has hit incomes and consumer confidence, and consumption has been sluggish overall,” he added.

“The domestic epidemic is beneficial for the e-commerce sector in the first two years, as the affected area is small and the duration is short, and there is a clear shift of offline to online consumption. But this time, the extent of the epidemic, the extremely strict level of closure, has left much more devastating consequences than the previous period,” said Xu, who took over the CEO position of the e-commerce platform from Richard Liu , the founder of JD.com, said.

Even one JD.com employee told Nikkei last month that most divisions are shedding 20%-40% of positions, but others are being closed, including procurement divisions. By community group, books and cosmetics were cut the most.

Revenue rose 18% on the year to 239.7 billion yuan ($35.3 billion) in the first quarter of 2022, slightly above analysts’ average estimate. But it’s also a record low revenue growth for the company since listing in 2014. However, the company posted a net loss of 3 billion yuan ($444 million) this quarter, compared with a net profit of 3.6 billion yuan in the same period last year.

The online retailer said the loss was mainly due to infrastructure investment, technology research and development, employee compensation and benefits, logistics support for Shanghai as well as subsidies for employees. partners in the context of COVID-19. Storage and transportation costs soar as China’s local governments rush to impose travel restrictions and quarantine requirements amid the country’s worst outbreak since the start of the pandemic.

In addition to waning consumption, draconian Covid-19 control measures have clogged supply chains, with warehouses and delivery stations locked down for weeks to prevent further transmission of Covid-19. Truck drivers are also forced to undergo Covid-19 testing and quarantine multiple times when traveling between different cities, which has extended delivery times.

“Moreover, while traffic and user numbers both increased in April and May, the average transaction value was lower than in previous years,” he said. “Consumer confidence and income are not enough, and consumption is generally sluggish.”

Locked warehouses and delivery stations in some key areas affected shipping at home and abroad, causing order cancellations to increase in April, Xu said. Despite an improvement in May, the cancellation rate remained high year-over-year.

JD and its larger rival Alibaba Group Holding Ltd. is grappling with an economic downturn from pandemic-related closures that have plagued logistics to cities like Shanghai. Relying heavily on domestic sales, JD has been expanding brand offerings to attract shoppers. Alibaba is expected to post its slowest quarterly revenue growth since its 2014 listing.

China’s strict Zero COVID policy and Beijing’s crackdown on the tech sector have created worries about its impact on the economy. Vice Premier Liu He told tech executives earlier this week that the relationship between the government and the market needs to be “properly managed,” adding that Beijing will support the development and public listing of the digital economy and private companies.

According to Zhang Yi, chief analyst at iiMedia, while the shutdowns are still large, e-commerce growth is likely to pick up in the second quarter with the easing of Covid measures in Shanghai, and the upcoming mid-year shopping festival.

Huynh Dung -According to Asia.nikkei