Post Pandemic

At the end of 2019, when COVID-19 was first discovered in Wuhan, the virus spread widely. As large number of people got sick, medical resources were under extreme pressure almost to the brink of collapse. As a result, the entire Wuhan was locked down and the province of Hubei became the hardest-hit area. Subsequently, the virus spread to the whole country.

The Chinese government adopted very strict methods to control the epidemic and even restrict movement of its people. Villages in many places are blocked and people are not allowed to enter or leave.

This, of course, had serious impact on economic activities. The most directly affected is the “third industry” that is, the service industry. Without anyone out and about , restaurants and entertainment venues were devoid of customers. Business during the Chinese Spring Festival was ruined, and this kind of loss is very real, and what is lost cannot be recovered. As such we can only wait until the economy recovers. But when?

Let us take a look at the economic impact of other epidemics in recent years for reference.

The World Health Organization (WHO) announced that the epidemic has become a Public Health Emergency of International Concern (PHEIC). The date that COVID-19 is recognized as such is January 30, 2020.

Table 1. The first 5 announcements of PHEIC have some commonalities in the economic impact:

1. During the PHEIC period, the growth rates of GDP and trade of the main affected areas declined.
2. After PHEIC, the GDP and trade growth rates of major affected areas will rebound.
3. The time of the rebound is related to the efficiency of the epidemic area in dealing with the virus and removing the incident. In the areas with high virus processing efficiency, the rebound is in the shape of a “V”, a “U” shape for those less efficient and a shallow concave shape for those that perform poorly.

Case: In April 2009, a H1N1 flu broke out in Mexico, and the WHO listed it as PHEIC on April 25. It was cancelled in August 2010 and lasted for 472 days, with global infections.

Mexico’s economy:
In the second quarte r of 2009, GDP fell 3.4% from the previous quarter. In the third quarter of 2009, GDP began to rebound with sustained growth.

China’ s effectiveness in handling the COVID-19 virus and eliminating incidents is, of course, a vast difference from that of Mexico’s handling of the H1N1.

Although the COVID-19 treatment in Wuhan is a bit slow initially and the number of people infected is large, the determination of the Chinese government is very firm and efficiently carried out. Therefore, the rebound of GDP and foreign trade will definitely be a “V” shape, in a matter of a quarter.

Stephen S. Roach of Yale University also believes that although China’s economic growth rate has fallen to a 27-year low o f 6% at the end of 2019,COVID-19 will not weaken the endogenous driving force of the Chinese
economy. This is because China’ s economy is undergoing transformation:
• From investment and export-led growth to consumption-led growth
• From manufacturing to service industry
• From excessive savings to savings absorption
• From bringing in innovation to own innovation

Roach believes that these transformations and the recent stimulus measures of the People’s Bank of China will definitely restore China’s economy after the epidemic is over.

We described the greater economic environment after the epidemic. What impact does the pandemic have on China’s furniture industry?

Regardless if it is good fortune or not, the worse period of COVID-19 in China occurred in the months of December 2019, January and February 2020, generally in the first quarter of 2020. For the furniture industry, the first quarter of the calendar year is an off-season, regardless of the size of the company, the first quarter is usually a loss.

Therefore, the first quarter is usually the “preparation period” or “development period”. Many factories develop new designs and prototypes during this off-season. Many then participate in the March furniture fairs to
launch new products, attract investment, receive orders, and open stores before the May 1st holiday. A cycle which repeats itself.

COVID-19 disrupted all of it.

Originally, Chinese factories restart around the 8th day of February, but it was delayed by one month. Although the some started in late February, many local workers were still in in the villages and towns on lockdown, while foreign workers were not allowed to return. In some places, returning was possible but after 14 days of quarantine, there was little left for the month of March.

It is already considered very good to be able to return to normal in mid-March. The furniture fairs in Guangdong were postpone to June, and missed the first peak season for opening of stores in conjunction with the May holidays. Therefore, there were not be too many factories that developed new models to participate in the exhibition after operations resumed as subsequent summer months of July, August, and September are also considered off-season. With only half a year left, and it is okay to modify existing designs.

In fact, the designs of furniture in China are updated too quickly. Many of them are changed yearly. I think this phenomenon
is due to:
• The quality of design is not up to standard, not able to achieve “evergreen” designs
• The market is remains immature and the absence of own creations. Customers too do not really know what designs they want.

This phenomenon of changing designs every year is actually a waste of resources. Designers have to crack their brains, factories have to prepare prototypes, and may even have to change machineries, materials, processes, etc. The resulting products are then put up at the exhibition for an uncertain outcome.

Is this not a huge waste?
Daniel Yan, publisher of Furniture Today China edition, believes that there are too many styles of furniture in China, to which I strongly agree. Do we really need so many different styles?

There are only 4 major styles of furniture in the US market. They are Queen Ann, Louis, Country and Mission, or with some modern panel furniture. There are only 3-5 styles in Japan and there are also few styles in Britain and France, Scandinavia and Northern European as well.

The Chinese have everything, they want everything and have almost every style there is. Ho

However, many are neither here nor there. They lack their own styles. The so-called Chinese style such as Ming style and New Chinese style are China’s own styles, right? They only occupy a very small share of the market. In Western-style modern-design buildings, Chinese furniture looked out of place. Therefore, if there is a high expectation for furniture, there is a need to pay for design and decoration elements. This in turn raises the cost of consuming Chinese style furniture.

COVID-19 at the turn of 2019/2020 has disrupted the pace of the traditional momentum of the furniture industry. I hope it can also disrupt the pace of new designs every year.

The assessment of Furniture Today China edition is: “The demand for home consumption will not disappear but delayed”. I am in complete agreement. The magazine published on February 28 an article entitled How does China’s furniture industry fight COVID-19?

For the Domestic market:
During the pandemic: people stayed at home, renovation cannot go on, stores are closed, and no one to serve even if opened. Therefore, domestic sales were static during this period, and transactions are postponed. As for how to respond during the pandemic, there have been a lot of discussions on the Internet, such as increasing online sales, etc. which I will not repeat.

After the pandemic, the market has certain to rebound, but it has become more differentiated. The business of traditional big malls did not improve much. The market instead moved upstream starting with real estate developers moving into the furniture trade. This is followed by ready-to-move-in package and then full interior package that includes renovation, furniture, furnishing and so on. In third- and fourth tier markets, furnishing companies took on renovation, furniture, soft furnishings and even including appliances for new homes. The first- and second tier markets are refurbishment of old houses undertaken by renovators in full. Dealers in the traditional malls get whatever is left.

For the Export market:

Exports deliveries are delayed by more than 30-45 days, which most customers understand. The concern is whether there is also a breakout in the destination market. Market struck by the pandemic experienced a decrease in demand, at least in the short-term. However similar to the Chinese domestic market, the demand is delayed but will not disappear.

These are all direct impacts, and indirect impacts may also be significant. For example, in Southeast Asian countries, raw materials, hardware and accessories etc., have always been supplied by China. The dependence is high. Some of the sofa factories in Malaysia I know had to stop work because of the disruption in the supply of sofa fabrics from Chinese suppliers. The situation in Vietnam may be even worse.

Several anti-dumping actions by the United States:

• On China’s solid wood bedroom furniture in 2004
• On China’s kitchen cabinets and mattresses in 2019

The biggest beneficiary of these anti-dumping cases is Vietnam. Many Chinese factories are forced to move to Vietnam, but raw materials, hardware and accessories etc. are still supplied by China. This is especially so for those newly moved last year. Some products are processed in China with small parts for completion in Vietnam. Since China has COVID-19, it cannot operate or supply goods, in turn Vietnam too cannot operate.

According to statistics, the furniture industry in Vietnam is dependant on China for up to 70% of its materials, machinery, hardware etc.

There were not many cases of the COVID-19 in Vietnam in 2020. However from March to April this year, there was a sudden surge. There were the UK mutations as well as the Indian variant which worsened the infection rate. All of a sudden many factories had to shut down. Many orders were transferred to China one after another, causing China’s factories to be overwhelmed. China’s raw materials rised sharply and the price of shipping containers soared.

The pandemic in China has eased this year. Almost all factories are operating normally. However it remains unknown when the infection will ease in Vietnam and other Southeast Asian and South Asian.

These direct and indirect impacts have a great effect on the world’s supply chain, brought about by globalisation. The development of China in the past few decades after its reform and opening up was largely dependent on globalisation. In the past few decades, the Chinese took over the low-end industries transferred from Western Europe and North America, starting from the hardest and most strenuous tasks, and building the world’s second largest economy bit by bit.

However, decades of globalisation have led to the narrowing of industries in many countries. Globalisation and collaboration have enabled all countries to develop industries with comparative advantages. As a result of the global division of labor, many countries have lost many industries.

Therefore, despite the more than a decade of anti-dumping action by the United States against China’s solid wood bedroom furniture, it has not revived this segment of the business in the United States because the Americans can no longer produce it themselves.

The narrowing of the industry is a cause for concern for all countries, worrying not only that another will cut off their supply in times of trouble, but also that they will lose their position in the industry chain and lose development opportunities.

The pandemic in China has severely damaged its economy, but it also severely damaged the world economy. This is because a large number of Chinese factories were unable to operate, which in turn severely reduced the supply of goods around the world.

• 70% of Wal-Mart’s products are sourced from China. If China shuts down for three weeks, Wal-Mart’s supply chain will be broken. If China shuts down for three months, Wal-Mart will have little to sell.
• A large number of parts used in production of South Korea’s Hyundai Motor come from China. Many production lines have been suspended currently in the Hyundai Motor Plant.

Such examples are a commonplace. Globalization has increased the variety of goods in the world and lowered their prices. However wealth is also more concentrated, and the risks of industries have increased. This has provided anti-globalization politicians an excuse to retain more industries in their own countries and expand industrial categories.

While it is still unclear the source of COVID-19, the virus has had many unexpected effects on the world and the globalised economy.