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Since we aren’t infectious disease experts, we’re going to do what we do best, which is to help you understand the virus’ impact on China tech, especially consumer internet, using our unique blend of industry expertise and bilingual and bicultural fluency. But we’re also going to do this with as much compassion and empathy as we can muster, because while the virus may well do some (hopefully not crazy) damage to China’s economy in the first quarter and beyond, we don’t think there is cause for cheer just because one is on the right side of the bet. In our opinion, there is nothing at all to cheer about. If the virus spreads further beyond Chinese borders, the whole world loses, but even if it doesn’t, a prolonged epidemic in China is bad news. Yes, it would have far ranging consequences on a business level, but the human tragedy unfolding is sufficiently devastating on its own. We have no idea how this will end, but one thing is for sure – the vividness of lockdowns and forced quarantines will be in the collective memory of Chinese people for a while to come, potentially exceeding the trauma of 2003’s SARS, which took place in the days before social media and self-publishing.
Let’s Not Eat Our Way to the Next Epidemic
Food has not been kind to China in the past year. African swine flu steadily decimated half of China’s pig population. Excruciating for a country whose favorite meat is pork. Even as the country shifted more to chicken and beef in light of soaring porcine prices, there were those who were skeptical of how quickly a few millennia of culinary tradition could adapt. Enter even more radical solutions. Even before the coronavirus outbreak, there were already murmurs of alternative protein (read: fake meat) companies making a go of it in China. There were of course foreign brands like Beyond Meat and Impossible Foods, but plenty of local players were cropping up as well, such as Hong Kong’s omnipork or Beijing’s zhenmeat (which has gotten very mixed reviews). Sudden investor interest in the area was no doubt heightened by both the swine flu and Beyond’s much touted, enormously successful IPO and subsequent momentum in the U.S. markets. If you’ve followed Tech Buzz for a while, you know that China tech can always be counted on to have fast followers, like in e-cigs and e-sports livestreaming, both of which were categories that saw a boom in China after eye-popping transactions in the US. The only thing holding back an explosion of players is that beyond simple soy-based mock meats, which China has excelled at (thank Buddhist vegetarians for that), the new generation of alternative proteins typically requires years of R&D. Thus only a handful of players have sufficient technology and IP to fall into this category.
But that was before the coronavirus. Post outbreak, the most vigorous finger-pointing has been at the revolting practice of eating wild animals. The Huanan Seafood Wet Market in Wuhan where the disease is thought to have originated (although there is now some doubt being cast on that narrative) sold more than just your typical fare. On display and available for killing and purchase were many exotic species (peacocks and foxes being among the less weird), some of which were protected / endangered, and which should have been illegal to capture and sell without an extensive licensing process. However, it is also common that these laws were rarely enforced, and that some of the most popular, like the Asian palm civet blamed for SARS, because of the high prices they can fetch, are now indeed bred for human consumption. Either way, the current uproar over eating wild animals is at a crescendo on the Chinese interwebs. (A vlogger had to apologize to the public for promoting bat-eating, even though the video in question was from a trip 3 years ago in the Philippines, where it was supposedly a local delicacy, because the animal is the current prime suspect as the originator of the Wuhan coronavirus). Regardless of how individual citizens feel about the government’s handling of the epidemic, everyone seems united in demanding more accountability when it comes to their compatriots’ ability to feasting on wild animals. Those who engage in it are publicly shamed, and many of the links promoting such delicacies have since been deleted.
As a vegetarian now for a dozen years, including all eight years that I spent in China, I’ve watched with interest as the country’s gustatory habits have changed. While traditional dishes still reign supreme, there’s been a much greater focus on organic and health-promoting diets instead of just “meat, meat and more meat” which used to be the heuristic used to judge whether or not you were living the good (often falsely equated to “long”) life. Case in point: when I arrived in China in 2007, almost no one ate salads, and I had vehement arguments with people about whether or not it would ever “be a thing” in China. (Pizza Hut’s one-plate salad challenge excepted – click through if you want to see how people over a decade ago tried to get their 30 RMB or whatever it was worth of food on one tiny plate). However, salads are a big business now, and peaked in 2016-18 with many VCs jumping in. (Salads gained popularity due to books on intermittent fasting like this one, not because of some fundamental change in taste.) Anyway, my point isn’t that Chinese people now love salads – the vast majority do not eat it with any regularity – but that if there is a health reason involved, then there is the potential for change.
Similarly, wild animals remain a coveted delicacy in China because of the cultural belief that one should eat what one is lacking, something the government has repeatedly tried to erase but is so deep-rooted and easily exploitable by merchants that it may be very difficult to curb. (They’re also a sign of one’s social status and wealth, but I’d argue that’s easier to reverse than beliefs in vague “healing properties.”) It is doubly dangerous when it is promoted by Chinese medicine, often cited as another culprit. But now, the fear of a wild-animal-eating-Chinese-initiated zombie apocalypse is just as real in China as it is elsewhere, and this might be the epidemic that finally makes it completely socially unacceptable to do so. So I hope readers know that it’s not just a funny meme overseas – Chinese people are absolutely furious at folks who eat wild animals. “They don’t even taste good!” Don’t do something that harms others and yourself, others beg.
The main question, though, is whether or not those born in the 80s and 90s, the latter which has consistently made headlines for outspending other generations on self-care when it comes to nutritional supplements, will be so rational in their decisions or succumb, like those before them, to old wives’ tales from their parents. So far, their furious purchasing of goji berries and fancy honeys are not particularly revealing – pseudoscience, as we’ve seen here in the US, is very profitable. Nonetheless, it does seem that the “super foods” du jour are generally sold over the internet in the form of pills, powders and jellies, so at least the chance of viral transmission in an open market can be reduced. In conclusion, while there are a few (admittedly significant) leaps to make from simply refraining from eating wild animals to embracing alternative proteins, this is a directionally positive development. With the twin epidemics of swine flu and coronavirus together, there’s been no better time to talk about eating clean meat, and while we’re at it, maybe fake meats too? Preferably without the pseudoscience. One can hope!
Wet Markets … Ick. Delivery … Yes.
Something we already alluded to in our last Tech Buzz episode, which was a pretty macro overview of China tech in 2019, is the potential lift for grocery ecommerce due to the outbreak. Background for those who haven’t listened to our Episode 58 on grocery e-commerce: over 70% of groceries are still bought in wet markets in China. Think, farmer’s markets, but where live animals are offered for selection to be butchered live for greatest “freshness,” and where the Wuhan coronavirus is currently deduced to have originated. In our episode, we mentioned many reasons why wet markets continue to be popular despite the ready availability of supermarkets – freshness, variety, ample free time for the retired are some of the oft-cited. With the virus, however, cleanliness might become top of mind. In any case, currently, in many cities, with car travel restricted and self-quarantines encouraged, going out to eat or grocery shop is either impossible, dangerous or inconvenient. Staying home and ordering from one’s smartphone is the much more practical thing to do, and as leading grocery e-commerce company Miss Fresh data shows, the company has experienced more than 300% growth in demand last week compared to last year. Thus, just like how Alibaba got a “strange and lasting boost from SARS,” perhaps the same will happen with food and grocery delivery.
Food delivery is already a massive business in China, exceeding $35Bn in 2018, and we suggest you review our (dated but still very relevant!) episodes on Meituan and Alibaba’s ele.me if you haven’t got a chance to listen. There’s still a lot of opportunity in third-tier and below cities, but overall it’s a more saturated market than what we’re going to call its cousin, grocery delivery. Given that for most of the public, the crisis is only two weeks old, Chinese internet companies, known for their speed, have been pretty fast to come up with coping strategies. On the 26th, ele.me has launched an “Get Online Express” service, where not just restaurants, but also grocery stores and convenience stores with an offline presence can apply to get on its platform and be approved as quickly as the same day. The service piloted in Wuhan but will be launched elsewhere. To help these small vendors who are undoubtedly hit hard by the crisis and yet whose livelihood are crucial to other residents, Alibaba’s Local Services unit just announced (yesterday) a series of 5 benefits including zero-commissions and additional lending capacity for merchants, as well as special virus insurance policies worth up to $43K for Wuhan merchants and employees.
Gestures of goodwill from Alibaba, certainly, but also great business moves, although this is a company that can afford it, with $43Bn on its balance sheets. Again, just as SARS proved an unexpected boon for e-commerce, so this lengthy quarantine could be the tipping point that grocery e-commerce needs. For cold chain vendor WanTon, the collaboration with ele.me means that residents can use their ele.me app to order groceries for pickup the next morning. 100 of these self pick-up locations went live on the 29th, covering the entire city of Wuhan, with more to come. In Wuhan and other Hubei cities where there were shortages especially (but has since mostly calmed down, by the sounds of it), platforms who specialize in logistics versus branded merchants with an edge in procurement, will be the bigger winner in the short term. In the (much) longer term, we’ll see who provides the better value and experience. But I think one thing is clear – especially for Chinese New Year’s, where traditions tend to revolve around shopping for, preparing, and eating food, as family gatherings tend to – a lot of that is going to be taking place online, in front of the smartphone (and maybe utterly alone!).
The Beginning of Remote Work, and the End of 996?
If you think my hope for more Chinese adoption of alternative proteins (from almost none!) is overly optimistic … then maybe you will find this next section less idealistic. The outbreak has brought with it temporary remote work policies for most of the internet companies in China. Companies like Tencent are asking employees to stay home for an extra week after the holiday, and not return to the office until 2/10. Obviously, for companies whose main products run on 1s and 0s, this was an easy decision to make – take the productivity hit and don’t risk infecting your entire employee base. Have one confirmed case in the office, and you might see the entire company be quarantined, much like Alibaba during SARS.
But will productivity actually be reduced? Alibaba’s famous launch of Taobao was on 5/10/03, right after their mandated SARS quarantine began, but obviously the product had already been in development before. (JD’s success story, on the other hand, really can be attributed to SARS.) Jack Ma, who’s famous for his way with words, has said that one shouldn’t think of SARS as a (business) opportunity, but as the chance to solve some pressing problems. And the pressing problem of today? Remote work. Which means that collaboration software products are jumping at the chance to solve this problem. There is a growing list of companies that are offering free usage for either selected or even the entirety of their Chinese user base until the disease ends or for the next few months (till May, June or even December for some). Again, goodwill be also incredibly opportune for customer acquisition.
More and more, guides like this one are popping up teaching teams how to run everything remotely. But as many have pointed out, it’s not a matter of implementing new tools, many of which have been available for many years, but instituting a whole new form of management (of people, of data, etc.) and decisionmaking. Having worked either partially or wholly remotely for the past decade, I agree that it has to be a systemic change in behavior that has to permeate all personnel and processes affected, and can’t be just a top-down command with no follow-through support. It’s not easy though, for as we mentioned in our last letter, Chinese companies are generally run very differently from their Western counterparts. That explains why most Chinese OA (office automation) software is not really designed for coordinating information and workflows, but really for managing people, with an inordinate amount of attention paid to making sure the employee is at their desk (through precision geolocation) for the allotted time. Inputs over outputs. (The word for it is “cloud monitoring,” by the way, which has been applied humorously to the building of the two new coronavirus hospitals in Wuhan, both of which are livestreamed for the entire nation to “monitor.” You can click through to the Kuaishou links here if you’d like to join in the monitoring: Thunder God and Fire God, ETA 2/3 and 2/6.)
Many investors have been waiting for this to change, but without a catalyst that cannot be ignored – like this virus – hope for a radical sea change out of the blue was low. Now, it might happen, at least for younger companies whose processes are still forming and for younger founders who might be less interested in a rigid hierarchy. From personal chats over the years with tech workers, there is a distinct difference between tech companies started in the 2000s or earlier and how they are managed, and newer startups helmed by Gen-Z. It could be a difference in size and company development, or it could be that fundamentally different life experiences and beliefs account for the differences. Either way, there are a lot of challenges to be resolved before remote work can be adopted en masse, and the currently estimated ~5mm in China who do are a small fraction of what we see here in the U.S., but if there was ever a chance to trial it and see if it works for one’s organization, now’s the time.