What China’s COVID Spike Means for Ecommerce Sellers

Just when the world is slowly starting to open up again, China is mandating more lockdowns as it gets hit by one of its biggest surges in COVID cases. Here’s how it affects ecommerce.

Biggest Crisis Since Wuhan

More than 15,000 people across 28 provinces in China were infected with the virus, caused primarily by the omicron variant. As the cases continue to go up, the Chinese government will face its biggest COVID challenge yet since the outbreak in 2019.

Source:  Statista

In order to curb the spread of the virus, China turns to its tried and tested zero-COVID strategy, i.e., strict lockdowns and movement restrictions. These measures are implemented because China has fewer intensive care hospital beds compared to other industrialized countries, considering its population.

The province of Jilin has the most number of new cases, but fortunately, 95% of those infected are asymptomatic or are experiencing only mild symptoms.

See the chart below for a comparison of the internet and mobile payment penetration rates in China and the United States.

Although several Chinese tech companies were launched by copying foreign companies, their application of digital technology and mobile payments grew to be more advanced, and their intimate knowledge of local culture and consumption behaviors made them more competitive in market share, worker hiring, and financing in China compared to overseas counterparts. The major e-commerce platforms in China today have expanded to include:

• Suning (1990), which has 1,600 brick-and-mortar stores around the country and sells physical merchandise, ranging from home appliances to baby care products;
• JD.com or Jingdong (1998), which is a business-to-consumer marketplace that purchases inventory from brands and operates its own logistics chain;
• Tencent (1998), which developed the social media app WeChat and the WeChat mobile payment system and has financial stakes in JD.com, Meituan, and Pinduoduo;
• Alibaba (1999), which developed the Alipay (Ant Financial) mobile payment system and has two major online retailers: Taobao and Tmall. Taobao was modeled on eBay as a consumer-to-consumer marketplace, whereas Alibaba’s Tmall was established as a business-to-consumer marketplace hosting local and international businesses;
• ByteDance (2012), which is one of the newest entrants to e-commerce and plans to sell products through its internationally-renowned apps, Toutiao and Douyin (Tiktok). Tiktok, which allows users to share short videos and has become particularly popular during the global lockdown, has more than eight hundred million users;
• Meituan-Dianping (2015), which is a merger of Groupon-like voucher sellers Meituan and Dianping and combines food delivery; restaurant, entertainment, and travel booking; and customer reviews into one universal online-to-offline platform; and
• Pinduoduo (2015), which has become widely used in rural areas for its combination of bargain shopping, gaming, and social media, is the largest interactive e-commerce platform in the world and has overtaken JD.com to become the second largest e-commerce site in China behind Taobao.

These e-commerce corporations, their platforms, and the Alipay and WeChat Pay mobile payment systems that have transformed financial transactions would not have been able to expand so rapidly without the ongoing efforts of China’s government to promote improved internet infrastructure throughout the country and the development of global e-commerce. More recently, the government launched a new strategic development plan for “new infrastructure.”  The Chinese “new infrastructure” projects include a focus on digital services such as 5G networks, the Internet of Things, and data centers, drastically accelerating the country’s e-commerce advancement.

Lockdowns in Some Manufacturing Cities

In January, CNBC reported that the zero-COVID strategy affects consumers more than manufacturers. This is because factories in China are mostly located in industrial parks, and employees live in dormitories. However, this doesn’t seem to be the case this time.

In Shenzhen, one of China’s most important Special Economic Zones (SEZ), all businesses not involved in essential public services have been suspending production. This affects companies like electronics manufacturer Foxconn, which supplies brands such as Apple and Toyota. They would remain closed until they receive a go signal from the government that they can start operations again.

Dongguan, another city in Guangdong, ordered lockdowns, permitting only necessary activities to be done outside of the home. Workers are also ordered to work from home, but in industrial parks that don’t have any reported cases it’s business as usual, except for stricter control measures. Guangdong is China’s leading province in terms of export in 2021, so lockdowns in this area can affect ecommerce sellers with suppliers there.

Amazon orders are expected to be delayed because of the pause in production, and those of you who are sourcing from China should also expect delays in manufacturing and shipment until the Chinese government eases restrictions.

How the Lockdowns Affect Oil Prices

Millions of consumers around the world had to pay extra for their gas when the war on Ukraine began last month. This price hike did not affect just the fuel we put in our cars, however. Products that depend on oil and petroleum such as plastics are also getting more expensive.

Last February, the United States saw its highest annual inflation hike since 1982, and with everything that’s happening in the world right now, prices are expected to increase further.

However, the lockdowns in China are resulting in a trend towards the opposite direction. China is the largest importer of oil in the world, but because of the lockdowns, we’re seeing a dip in oil prices due to the decrease in demand.

Final Thoughts

China’s zero-COVID policy might have worked in the past, but we have yet to find out if it’s as effective in mitigating the spread of the highly infectious omicron variant. Some experts say no, including Nomura Holdings’ chief China economist, Ting Lu, who said the benefits of the strategy are diminishing while its cost is rising.

However, the Chinese government seems adamant about pushing through with the lockdowns.  There are many other countries where you can source your products from, but China remains the largest exporter in the world. So ecommerce sellers who are heavily reliant on Chinese suppliers will have to deal with the consequences of these lockdowns.