Impact of #Covid19 on Chinese Economy after the end of confinement

1. COVID-19’s Impact on China
Insights for the World?
2 April 2020

2. 2
 WHERE CHINA IS TODAY
• It took 2 months for China to take control of the Coronavirus, but in March the economy ramped up.
• Macro economic indicators are all all up; the equity markets and investment activities are also rising.
• People will gradually stop wearing masks by mid-April.
• Expect a sizable drop in Q1 and Q2 activity, but an overall economic rebound in China is anticipated in 2H
 IMPACT ON COMPANIES
• The Coronavirus has accelerated digitalization and AI efforts in all sectors and has widened the gap
between market winners and laggards.
• Sectors relying the most on offline demand or offline production are most impacted in the short term,
but they’re expected to resume by the end of Q2.
• Recovery in the “cartech” sector is beginning to start-up again, after a steep drop in sales volume in
January and February. Expect this sector to consolidate in 2020.
• For companies benefitting in the short term, the key will be to turn this short-term edge into sustainable
market leadership and long-term advantages.
 FROM AN INVESTMENT PERSPECTIVE:
• We are optimistic, yet cautious, about the opportunities in China.
• We expect to see new investment opportunists emerge in 2H that help businesses digitize and offer new
services to educational, consumer, and entertainment companies, new types of high-quality food and
technologies that bring rapid automation and AI to healthcare and new flexible staffing models.
INSIGHTS

3. 3
New infections in China are now mainly imported cases Historical low level of Industrial Production in Jan-Feb 2020
Further weakened trading activity in Jan-Feb 2020
following a already low 2019
Retail sales down by 20.5% in Jan-Feb
Source: WHO, NHC of PRC, Wind
Industrial Production (MoM%) PMI (right axis)
Total retail sales of consumer goods (MoM%)
CPI-adjusted retail sales of consumer goods (MoM%)
Export (MoM%) Import (MoM%)
China contained COVID-19 by shutting down it’s economy in Jan and Feb

4. 4
But in March the Chinese economy ramped back up…
As of Mid-March:
 On average >90% resumption rate in
China except Hubei, almost 100% for
some regions like Shanghai, Zhejiang,
Jiangsu, Shandong, Guangxi,
Chongqing, etc.
 Resumption rate varies across
different industries: F&B 97.3%,
Logistics >85%, Railway
transportation 95%, Medical >90%,
Chemicals >90%, Electronics >90%,
Coal production 76%, Steel
80%,Mechenicals >80%, Textile 80%,
Nonferrous metals 86.3%, etc.
 The government is putting in place
policies to encourage the resumption
of work across the country while
supporting companies, especially
S/ME’s to get back on their feet.
Work Resumption Rate as of Mid-March

5. 5
And so did China’s major macro economic indicators…
Coal consumption of 6 major producers rebounded with
only negative 13% YoY as of 18 Mar 2020
Domestic transportation picking up with 11% below 2019
Steel demand quickly catching up as of 7th week
post CNY (by 20 Mar)
Source: Wind, GS studies, Travelsky, Mysteel
Domestic flights recovered while international flights
dropped as of 7th week post CNY (by 20 Mar)

6. 6
-11%
-17%
-40%
-30%
-20%
-10%
0%
10%
2020-1-27 2020-2-10 2020-2-242019-12-30 2020-3-9 2020-3-162020-1-13 2020-2-3 2020-3-242020-3-22020-1-6 2020-2-172020-1-20
-20%
-24%
FTSE(GB)
S&P 500(US)
-27%-28%
-27%
-29%
CAC40(FR)
SSE(CN)
DAX(GR)
Dow Jones(US)
Nasdaq(US)
N225(JP)
Hang Seng(HK)
Performance of major stock index (as % of 1 Jan 2020 price)
Since early Mar,
rapid increase in
global pandemic and
major markets
dropping across the
world impact
Chinese indexes
Limited drop of Chinese indexes until early March
The Chinese equity market is bouncing back…

7. 7Source: PE Data - Simutong
Fundraising event summary since Jan 2019
Private equity investment summary since Jan 2019
# of investment cases (left axis) Investment value (right axis)
# of fund financing cases (left axis) Financing value (right axis)
USD’M# of fund raising
USD’M# of investments
While fundraising activities in China have resumed …

8. 8
Sector Observations and Insights
Business
Services
 The coronavirus has accelerated the digitization and automation of business services
 Benefiting most will be companies focusing on cloud communication, security, and supply chain
operations as well as those who offer vertical applications in medical treatment, finance, and beyond.
 As the economy rebounds, we expect to see a large number of new brands to emerge and try to take
market share. These new brands will leverage new innovative marketing services and channels that brings
a new wave of tools and solutions.
Industrial
 While new investment in this category will be slower than others, expect to see new business models and
industrial technologies, like smart/unmanned manufacturing and solutions leveraging 5G technology to
emerge.
Consumer
 We expect China's consumer sector to return to pre-epidemic levels by the end of Q2, with the exception
of a select group of offline entertainment, tourism and cross-border e-commerce companies.
 We expect that leading companies in the consumer sector who release new products and services that
use and/or create new marketing channels, offer new types of health lifestyle products/services, and
tech that help improve the efficiency of the supply chain will get more attention from the market.
Healthcare
 Expect to see more investment over next few years as the coronavirus highlighted the gaps in the medical
treatment across different parts of China
 Expect to see new innovations emerge in areas such as high-value health consumables, IVD and drug
related services and platforms leveraging AI/ML to help improve the efficiency of drug R&D and
healthcare-related services.
Observations and Insights

9. 9
Observations and Insights (Con’t)
Sector Observations and Insights
Tech
 While industries requiring offline sales activities/fulfillment will be the most impacted in short term by the
epidemic crisis, companies with online business models or new technologies that improve digitization
and automation should benefit.
Cartech
 Recovery in this sector is beginning to start-up again, after a steep drop in sales volume in January and
February.
 We’re expecting to see the sector consolidate. Companies that survive and then thrive are those that are
"technology-driven" and focus on "synergy creation" across the ecosystem.
Smart
Energy
 China announced a “new infrastructure building plan” in March that’s designed to increase innovation in
sectors like EV charging, high voltage electricity transmission and industrial IoT.
 Areas that will see increased investment will be solutions that help operators and energy companies
operate more efficiently as well as automate and digitalize operations.
 Expect to see demand for investment rise as new sustainable energy tech begins to emerge.