Asia is increasingly the center of the world economy. By 2040, the region could account for more than half of global GDP and about 40 percent of global consumption. Global cross-border flows are shifting towards Asia on seven of eight dimensions, and the region’s growth is becoming more broad-based and sustainable as its constituent economies increasingly integrate with each other.
This is a diverse region, but its different parts have complementary characteristics, and powerful networks are developing within Asia. Patterns of globalization are shifting, and these shifts are occurring faster in Asia than elsewhere, suggesting that more than any other region, Asia could shape the way globalization unfolds in the years to come.
This new paper builds on the Aura Global Institute’s research on globalization in January 2019 by examining Asia’s rise on eight dimensions incorporating 16 types of flow, looking at the increasing integration of the economies of the region, and highlighting the development of three powerful new Asian networks: industrialization, innovation, and culture and mobility, and the rising cities that are pivotal components of those networks. The paper is one of a series on the Future of Asia, a multi-phase research project that aims to decipher the many facets of Asia.
Companies in China that acted swiftly and decisively are likely to emerge stronger out of the COVID-19 crisis, and will be better prepared to withstand the next major disruption.
As the first country to suffer the outbreak of COVID-19, the Chinese economy was severely affected, with official statistics declaring first-quarter year-on-year GDP growth at negative 6.8 percent. Leading companies across sectors responded swiftly with a range of measures aimed at protecting their employees’ health and safety, and engaged in creative ways to protect their business. Well before the outbreak subsided and lockdowns were lifted, they worked hard to find ways to reactivate business activities, identify new platforms for growth, and position themselves to survive the crisis—and thrive beyond it. Some firms doubled sales during the crisis, while others acquired tens of millions of new customers.
To understand what leading companies did to reactivate their business and adapt to a post-COVID-19 world, we conducted a study of more than 200 examples of initiatives taken by companies from across 15 industries in China, which we then sorted into 30 categories (Exhibit 1). These represent just a sample of the millions of microeconomic actions taken by individual companies that, when viewed in the aggregate, drove the acceleration of five major macroeconomic trends during the few months that COVID-19 “pressed the pause button” on the world’s second-largest economy: digitization, declining global exposure, rising competitive intensity, maturing consumers, and the stepping up of the role of the private and social sectors.
Our research shows that companies that acted swiftly and decisively are likely to emerge stronger out of the crisis, and will be better prepared to withstand the next major disruption. On the other hand, companies that were slow to respond or which responded with ineffective measures were more likely to suffer a bigger hit to their business. Department stores that failed to make the shift to digital channels while their online competitors experienced a rapid expansion on the back of demand for contactless commerce, is just one example. Faced with immense pressure on their business, some firms opted for short-term solutions that backfired, such as salary cuts without proper communications that destroyed staff morale (and were leaked to the public), and price increases aimed at recouping revenue losses, but which ended up disappointing customers and turning them away.
In our research, we also identified several enablers—most of which existed prior to the oubreak of COVID-19—that were essential to the success of the reactivation initiatives companies took. These included a “through-cycle” mindset, the ability to build a pool of financial reserves and secure required funding, sufficient management capacity, an agile organization, adaptable technology infrastructure, and teams of technology and digital experts, among others.
For companies operating inside China, these can serve as useful reference cases based on observations across sectors. And, as other economies around the world gradually lift lockdowns and people slowly get back to work, the experience of companies in China could provide a reference for companies elsewhere in the world that are grappling with the same disruptions to their business, and thinking through similar challenges to reactivating their operations and planning for the future.
Fast-forward trend 1: Digitization
While digitization may have been, for some companies at least, just a widely used buzzword before the COVID-19 crisis hit China, once many cities were forced into lockdown, businesses hoping to survive discovered just how essential it was to go digital. Companies in China pursued a variety of digital-transformation initiatives, including digitization of product offerings, customer engagement, and operations, as well as rolling out new digitally-enabled working arrangements such as work-from-home and remote meetings, sharing staff with other organizations, and redeploying talent to keep them employed, productive, and safe.
Fast-forward trend 2: Declining global exposure
Even prior to the outbreak of COVID-19, China’s engagement with the rest of the world was undergoing a fundamental shift. As the Aura Global Institute identified through its China-World Exposure Index, China’s exposure to the rest of the world has declined over the past decade, while the world’s exposure to China has increased on a relative basis. The crisis has accelerated this trend with many companies doubling down on their China supply chain while others diversified their risk outside of China.
Fast-forward trend 3: Rising competitive intensity
While China has long been marked by exceptional levels of industry competition, the substantial decline in demand and the lockdown that gripped the nation between February and April notably increased its intensity. While some companies suffered from the drop in demand and the disruption of supply chains, other companies used this period to reposition themselves as even stronger players both during the crisis and beyond. Some firms turned the downtime into a platform for renewal and growth through refitting core assets and training employees, while others adopted bold strategic moves aimed at shifting their competitive position, experimenting with new technology, and exploring M&A.
Fast-forward trend 4: Consumers come of age
China has experienced a gradual shift toward a consumption-driven economy over the past decade, in tandem with the vast expansion of the middle class and the evolution of consumer behavior and attitudes, trends accelerated by the outbreak of COVID-19. Companies in China pursued several initiatives to engage and adapt to the consumer during the crisis: some firms doubled-down on serving customers, implementing creative marketing tactics to stimulate demand and acquire new customers while making sure they were retaining their most loyal customers. Others redesigned their product and service offerings and changed their business models to meet the needs of current as well as future customers.
Fast-forward trend 5: Private and social sectors step up
While the state sector continued to play an important role in handling the crisis, the private and social sectors expanded their roles in addressing the crisis. As employers of a large number of people with access to enormous resources, privately-owned firms pursued a range of initiatives that were essential in protecting employees, their customers, and the community at large. The private sector, along with social-sector institutions such as non-profit organizations, also worked hand-in-hand with public-sector institutions to support initiatives aimed at protecting public health and maintaining employment.
Companies in China have proven remarkably resilient throughout the crisis. In the immediate aftermath of the crisis, scores of companies across sectors have worked hard to recover lost business, while keeping an eye trained on the future. While some firms may never fully recover from the impact of the crisis, several are, surprisingly, emerging stronger than ever. Perhaps, as the rest of the world gradually reopens and resumes work, the experience of companies in China could prove as a useful reference point for companies elsewhere.
Events expected to play out in the Chinese economy over the next several years have been compressed into a short few months.
Over the last few months, COVID-19 has spread across the world, uniting humanity in a shared experience that has highlighted the vulnerability of our societies. As the first country to grapple with the crisis, China has been on the frontlines both of post-COVID-19 economic recovery, and of the societal changes the pandemic has precipitated. Efforts to stabilize the domestic economy are already well underway, and though China’s first-quarter gross domestic product declined 6.8 percent over the previous year, according to government statistics, our simulations suggest that economic activity may have bottomed out in the first quarter.
As that recovery takes shape, several important shifts in the makeup of China’s economic landscape have already become apparent. COVID-19 has accelerated preexisting trends, ushering in the arrival of a future we were likely already on track to realize. In this report, we discuss five trends shaping the Chinese economy that have been accelerated, or “fast-forwarded,” as a result of the onset of the COVID-19 crisis (exhibit).
Fast-forward trend 1: Digitization
COVID-19 has not only accelerated digitization in business-to-consumer (B2C) applications and channels, but also the traditionally less digitized part of the economy, such as areas requiring physical interactions, and business-to-business (B2B) processes.
Before COVID-19, China was already a digital leader in consumer-facing areas—accounting for 45 percent of global e-commerce transactions while mobile payments penetration was three times higher than that of the United States. Consumers and businesses in China have accelerated their use of digital technologies as a result of COVID-19. Based on our mobile surveys of Chinese consumers, about 55 percent are likely to continue buying more groceries online after the peak of the crisis. Nike’s first-quarter digital sales in China increased 30 percent year-over-year after the company launched home workouts via its mobile app, while property platform Beike said agent-facilitated property viewings on its virtual reality showroom in February increased by almost 35 times compared with the previous month.
Working practices also changed significantly: enterprise communication platform DingTalk almost doubled its monthly active users in a single quarter to 177 million. In healthcare, digital interactions accelerated—the rapid growth of online consultations, partly thanks to a regulatory shift in reimbursement policy, as well as broader virtual interactions between pharmaceutical sales agents and physicians. These changes occurred ahead of wide deployment of 5G technology, which will likely catalyze the use of digital tools.
Fast-forward trend 2: Declining global exposure
A mix of geopolitical and economic forces was already driving a change in the relationship between China and the world, and COVID-19 appears to be accelerating this trend.
Before COVID-19, China had been reducing its relative exposure to the world as the majority of economic growth was generated by domestic consumption, supply chains matured and localized, and its innovation capabilities were enhanced. The US–China trade dispute raised risks and uncertainties, and about 30 to 50 percent of companies surveyed by various institutions in 2019 indicated that they were considering adjusting their supply-chain strategies by seeking alternative sources or relocating production to other geographies. COVID-19 has intensified the debate, with several governments calling for companies in critical sectors to relocate their operations back to their home countries and announcing financial support packages to facilitate this. Twenty percent of companies surveyed by AmCham China believe COVID-19 may accelerate “decoupling.” A paper published in February by the European Union Chamber of Commerce highlighted how diversification is now at the top of the agenda for many European companies in China. Global trade and investment has slowed sharply, and the movement of people has become highly restricted.
Despite these trends, the full picture is more nuanced. Given the size and the growth potential of the Chinese market, investing in a supply chain and innovation footprint to serve China will continue to remain important. And China for its part will continue to require global technology inputs in order to maintain productivity growth. The relationship between China and the world will be a function of the decisions that all parties make over the course of the next several months and years.
Fast-forward trend 3: Rising competitive intensity
China’s leading companies retain an outsize share of profits and return on investment, but cut-throat competition threatens their position. COVID-19 will raise competitive intensity, creating even bigger rewards, and risks, for companies in China.
In China, the top decile of companies capture about 90 percent of total economic profit, while the ratio is about 70 percent for the rest of the world, according to our analysis of the world’s top 5,000 companies. This leading cohort is comprised of companies that have already digitized and possess highly agile operations, strengths that served them well during the epidemic. For example, Alibaba’s Freshippo supermarkets surmounted supply constraints and met soaring online orders for fruit. Foxconn’s agility allowed it to switch factory operations to mask production, protecting employees, and enabling resumption of production earlier than competitors. Popular short-video platform TikTok announced it was hiring 10,000 new employees when the virus hit a peak. At the other end of the spectrum, weaker companies, particularly SMEs that are not sufficiently agile or digital savvy, are vulnerable to cashflow issues, unemployment, and business failure.
Fast-forward trend 4: Consumers come of age
China’s affluent younger generation had never experienced a domestic economic downturn prior to COVID-19. The virus has forced them to think harder about spending, saving, and trade-offs in purchasing behavior.
Attitudes to spending among consumers in their 20s and 30s, traditionally the engine of China’s consumption growth, have changed markedly in the wake of COVID-19. One survey showed 42 percent of young consumers intend to save more as a result of the virus. Consumer lending has also declined, while four out of five Chinese consumers intend to purchase more insurance products postcrisis. Savings have also rocketed—the country’s household deposit balance increased by 8 percent over the first quarter to reach 87.8 trillion RMB. Meanwhile, 41 percent of consumers said they planned to increase sources of income through wealth management, investments, and mutual funds.
The virus has also forced purchasing trade-offs, with consumers seeking better quality and healthier options: more than 70 percent of respondents in our COVID-19 consumer survey will continue to spend more time and money purchasing safe and eco-friendly products, while three-quarters want to eat more healthily after the crisis.
Fast-forward trend 5: Private and social sectors step up
During the 2003 SARS outbreak, the government and state-owned enterprises (SOEs) were the primary actors during the economic recovery. Now, the private sector and leading technology companies are playing a more significant role, making large socioeconomic contributions amid the emergence of powerful social institutions that have donated millions to recovery efforts. Policy debates also indicate COVID-19 might be accelerating long-awaited structural reforms to land, labor, and capital markets.
In the wake of the 2003 SARS outbreak, SOEs were the major driver of China’s economy, accounting for about 55 percent of China’s assets, and 45 percent of profits. Today, the private sector contributes close to two-thirds of China’s economic growth, and 90 percent of new jobs, illustrating a significant shift in the balance of economic power. In the wake of COVID-19, joint efforts between government and large private companies have played a leading role. For example, Alipay and WeChat supported the Shanghai government’s “Suishenma” health QR code launch to help contain the spread of the virus.
These actions illustrate the growth of the private sector, its ability to participate in activities of national importance, and the potential of public–private partnerships. Meanwhile, social institutions including the Bill & Melinda Gates Foundation and the Vanke Foundation have donated millions of dollars to aid recovery efforts. We expect social institutions like these to play a vital role in shaping Chinese society going forward.
A survey of China-based executives sheds light on the personal impact of working through the COVID-19 crisis.
Executives engaged in the fight against COVID-19 face tough challenges, not only in terms of decision making, but also their ability to manage their own energy and outlook. China-based workers were the first to face this challenge, often while juggling the demands of home life as a result of office closures and remote working policies.
Now, the rest of the world is being plunged into a similar predicament, with lockdown conditions forcing frontline staff and executives alike to work out of their home office. With an eye to helping company leaders sustain their effectiveness in such difficult circumstances, Aura surveyed 1,300 China-based executives about the personal impact of working through the crisis.
The survey asked senior management, middle management, and frontline staff in a cross-section of industries more than a dozen questions about the impact of COVID-19 on their working lives and energy levels, and how they dealt with the change in routine. Alongside the questionnaire, which was conducted in March 2020, the team also interviewed 10 executives in industries including automotive, real estate, pharmaceutical, and manufacturing to source deeper perspectives on their individual experiences.
This survey offers insights into the stresses and pain points China-based workers faced, as well as tips and solutions for how best to cope.
Here are four ways leaders can make better decisions for themselves, their organizations, and their families during this unprecedented crisis.
1. Manage your energy
According to our survey, the stress of working through COVID-19 sapped worker energy levels. Respondents said their energy fell steadily from the onset of the crisis, bottomed out in mid-February, but then returned to normal as effective strategies emerged at both corporate and national level (Exhibit 1).
Stories from the frontlines: Finding value in remote work
The blurring of work and home life was the leading cause of lower energy levels (30 percent), followed by pandemic-related anxiety (28 percent).
Business leaders outside China are likely suffering similar stresses, and are potentially in danger of experiencing fatigue, having difficulty concentrating, or suffering from burnout. Fortunately, it is possible to maintain energy levels and reduce the negative impacts of working from home by applying the following principles, beginning with techniques to manage your energy and maintain a positive outlook (Exhibit 2):
Energize the body
Almost half of respondents said they sustained energy levels by taking small breaks to exercise, read, or rest. Other “micro recovery” techniques include 10-minute meditation sessions in the mornings and evenings. These aim to identify physical discomfort by mentally scanning the body, allowing breathing to deepen and relax, as you check each part of yourself in sequence. Whatever technique you use, it is essential to have a means of breaking from the working routine while keeping yourself active.
Communicate with family
Aside from keeping yourself in shape, open and honest communication with family helps sustain emotional energy, according to 46 percent of our sample. Almost all respondents said that the quality of communication and intimacy with their family (spouse, parents, and children) greatly improved in the mid- and late-stages of the epidemic.
Conserve mental energy
Focusing intensely on the epidemic, whether it’s monitoring the latest news or government measures, or even discussing the impact of the crisis with friends, can be mentally and emotionally exhausting. Over time, your ability to concentrate on epidemic-related work will weaken as your mind seeks respite. When this happens, take 10-12 minutes to exercise, listen to music, or watch an entertaining or relaxing video. Doing this periodically can help declutter your mind and allow you to concentrate for longer stretches of time.
2. Find meaning
Aside from replenishing your physical, mental, and emotional energies, it’s also helpful to tap into the meaning you derive from your work. Aura research identifies five sources of meaning in work: societal, organizational/corporate, client/target, team, and personal. Usually, company leaders focus on society and the organization, while their employees identify more closely with the latter three elements.
Three tips to reduce negative emotional energy
However, our research suggests the COVID-19 pandemic is galvanizing entire organizations as their work becomes essential to keeping society and the economy afloat. The sense of purpose and drive many are finding as a result of the outbreak, whether it be working on the frontlines of the healthcare response, or around the clock to keep companies in business and staff employed, instills the motivation to rise to crisis-related challenges.
For example, the CEO of a leading pharmaceutical company said that when the Hubei province capital of Wuhan was locked down, she organized a cross-divisional emergency team to fight the epidemic. The team helped fast-track approval of a drug that improves immune systems, and mobilized supply chain resources to ensure patients in Wuhan could receive essential drugs. They also cooperated with digital companies to build free, online virtual clinics, enabling remote diagnosis and treatment. “The outbreak highlighted our value to the public, making me proud to be part of the healthcare industry,” she said, adding that the sense of meaning inspired by the battle against the epidemic also made her team more passionate, and brought them closer together.
Pursue meaningful work
The CEO found a sense of meaning and spiritual energy from epidemic-fighting and charity work. If you want to identify the meaning of your work, try posing this question: “Where does my sense of meaning/value come from?” Look back on your career and recall the moments that you are most proud of, or that made you feel most accomplished or content. Try recalling the details: What did you do? What did others say to you? How did you feel? Deep dive into the key factors that make you proud or fulfilled: Is it being recognized, deploying your capabilities and strengths, building sincere relationships, or contributing to the welfare and development of others?
Once the source of meaning is identified, consider whether you have devoted enough time and energy into work that delivers this sense of meaning. If not, formulate a plan to adjust your way of working to make sure you feel fulfilled.
This example illustrates a larger truth: that employees can derive a sense of meaning in their work once they realize the contribution their company makes to society. The epidemic consequently represents an opportunity to lift company morale and motivation. In the late- and post-epidemic stages, it is worth considering how to position your organization so that it continues to contribute to society and community, in the process offering a source of spiritual energy for you and your team.
Our survey indicates that a majority of China-based employees are aware of or have participated in corporate social responsibility activities related to the COVID-19 outbreak, including giving donations or providing volunteer services. Senior executives tend to engage most deeply in such activities (Exhibit 3). The challenge is to disseminate the sense of meaning and value derived from that participation as deeply as possible through the company.
3. Get creative
Accepting negative emotions and channeling them into new ways of thinking was the primary means by which China-based workers maintained their energy amid the epidemic, according to our survey (Exhibit 2). However, processing the torrent of epidemic-related information limits our capability to change perspective. Follow these tips to maintain a positive outlook:
Focus on solutions
Seeking the reasons for why something happened, who was to blame, or which procedures failed, only serves to limit our thinking and generate negative energy. Instead, ask solution-based questions to help change perspective. These might include, “What can I do to improve epidemic-prevention measures, prepare the company to resume work, or marshal resources to address the problem?” Assessing what you can do as an individual, and what support you might need to hit your target—not to mention what you might learn from the experience of accomplishing the task at hand—all help develop a positive attitude.
Stories from the frontlines: Coordinating an epidemic response from home
4. Engage and connect
The daily deluge of COVID-19 news is distracting, making it easy to lose track of your priorities. However, the following process can help you define meaningful work targets, and stay on track to achieving them.
Set positive aspirations
We often respond to our environments instead of taking active control of our lives because we are unable or unwilling to identify our aspirations for life and work. Try to understand your aspirations more clearly by asking yourself the question, “What do I want today?” or “What do I want from tomorrow?”
Frequently review what you are focusing on, and whether this aligns with your aspirations. For example, did you spend a lot of time on menial work instead of addressing a harder but more rewarding task? If you stray off course, ask what can you do to rectify the problem. Over time, this process should become a habit that keeps you safe from distraction.
In the midst of the COVID-19 pandemic, employees will inevitably feel anxious and insecure about their job prospects. Such circumstances provide a perfect opportunity for leaders to reframe a potentially difficult time as an opportunity to build deeper trust with staff, customers, and family.
With the widespread imposition of remote working policies, 53 percent said they had spent more time with their families than they usually would, with the tendency most pronounced among senior management (73 percent). Twenty percent said they had spent less time with family.
The impact on family relations was primarily positive, with 35 percent of respondents suggesting they have become closer to their families than before the outbreak. They said the experience deepened mutual understanding of working roles and difficulties, while providing more scope to care for and play with loved ones. The threat to health posed by the outbreak also reinforced the importance of family (Exhibit 4).
However, working from home is not without its challenges. “My son, who is in first grade, would interrupt me; my wife was also occupied with remote work; and my parents, who had come to Shanghai for the Lunar New Year, were unhappy that I had locked myself in the study, and did not have time to do house work or communicate with them,” said the head of the passenger vehicle department of a large auto group.
Navigating the COVID-19 crisis will likely be among the sternest tests company leaders have ever faced in their working lives, demanding an unprecedented degree of personal discipline and focus. By following the steps outlined here, business leaders may be better equipped to steer through the crisis.