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China Last Week – How Quarantines and The Resulting Work From Home Lifestyle May Benefit Internet Sector

Hello everyone! I’m Derek. Welcome to China Last Week.

Coronavirus outbreaks continued globally last week. There are over 100,000 people got infected globally and over 200 people got infected in the US. Things could get worse in the short term. However, the spread of the coronavirus in China has slowed down.There’s only few new cases outside of the Hubei province in China, and more than half the people have already recovered from coronavirus. Even since the improvement in China, many people still prefer to stay at home to prevent further infection.

Due to the massive quarantine in China, China has seen some new businesses boom. For example, E-groceries like Alibaba’s Hema,  JD Supermarket, and Tmall supermarket has seen rapid user growth recently. Those apps can actually deliver groceries to your doorsteps without face to face interaction. Compared to traditional e-commerce, the high-frequency nature of grocery shopping actually allowed new users to learn how to do online shopping for their daily necessities.

So this is going to increase the penetration rate of online shopping across China.    

The outbreak of the coronavirus means that students and teachers in China are increasingly turning to online education. According to Deloitte, the private education market in China is projected to grow over 700 Billion dollars by 2025.1 Currently, the market concentration rate is quite low, leaving tremendous room for industry leaders to grow their market share. Leaders like TAL education is actively developing their online education platform. This gonna be a long-term growth driver for the industry in the future.

The quarantine has created a massive demand for remote working solutions. Ding Talk, Alibaba’s remote working app, now has 200M Daily Active Users. Their traffic hit an all-time high during coronavirus because most people are working from home. Tencent’s WeChat Work also saw 10-times user growth during the coronavirus outbreak. The remote working solutions actually can be a new revenue generator for the China Internet companies.

It’s unclear how many countries are going to follow China to quarantine people, but the quarantine and self-quarantine in China could continue for a while. It’s almost for sure that China will have an ugly Q1 economic data.

The shrinking of short-term demand will create a lot of issues for small companies in China. The most vulnerable companies are going to be those with poor cash flow and balance sheet. However, the Internet companies in China usually have a lot of cash in hand. For example, Tencent has 28B dollars in cash, and Alibaba has 76B USD in cash. We believe those companies are in a better position and could benefit in the long run since the market concentration rate could increase in the future.

Thanks for watching China Last Week, I’m Derek. Please tune in next week for the latest update on China. Many thanks from Kraneshares.

  1. Chan, Elaine. “China’s private tutoring industry is booming despite economic slowdown,” South China Morning Post. March 25, 2019.