2.47 lakh Chinese firms go bankrupt in Jan-Feb due to Covid outbreak

With the coronavirus crisis severely hurting the Chinese economy and businesses, a report has suggested that around 2.47 lakh companies in that country have declared bankruptcy during the first two months of 2020.

Citing a blog by business writer Wu Xiaobo, written in Chinese, supchina.com said that Guangdong was the most impacted province, with over 30,000 companies going out of business in January and February, followed by Shandong, Jiangsu, Sichuan, and Zhejiang.

Several reports have recently said that many Chinese companies, especially small businesses, are feeling the heat as the pandemic brought consumer activity to a halt. Almost 36 per cent of the private-owned firms that responded to a survey conducted by Tsinghua University in February said that they were hammered by the economic fallout from the outbreak and did not expect to survive after a month.

In another survey released in February, more than 60 per cent of the small and medium-sized enterprises in Shandong said that they could only hold out for a maximum of three months under current conditions.

Wu Xiaobo also noted that new companies, which pulled their shutters down in January and February, are the most severely affected by the outbreak. Around 55 per cent of the companies that have gone bankrupt were startups, with a lifetime of below three years.

According to the report, companies in the hospitality and retail industry have been going through a particularly rough time because people were advised to practice social distancing and avoid public places.

The China Chain Store and Franchise Association (CCFA) also had made similar observations about two months ago, which showed that retail shops in China were experiencing a 50 per cent sales drop, with restaurants making only 30 per cent of their normal profits. Other seriously impacted sectors include rental services, construction, and farming.

Further, according to business data platform Tianyancha, since February, more than 28,000 companies across China have expanded their scope to include healthcare-related services and the manufacture of medical equipment such as thermometers and masks, said the supchina.com report. Internet-based firms have also seized the opportunity to grow as people face a new reality in which online classes and virtual meetings have become the norm, it added.

Further, Wu Xiaobo's report also noted that due to closure of many government offices in January and February, a considerable number of companies in serious financial trouble were unable to file for bankruptcy. As China slowly grinds back into activity starting this month, the report predicts that the number of bankruptcy applications will only rise in the next two months and more companies will go out of business..