TheChek News Flow

Life in the Chinese capital had returned to normal before mass testing revealed outbreak

Half of Beijing’s districts reported new coronavirus cases on Monday in the country’s most serious upsurge in infections for months.

Authorities announced that 79 people had been hospitalised and there were 36 new infections in the Chinese capital, a day after more than 75,000 tests were conducted in the city of 20m.

The cluster of infections linked to Beijing’s largest seafood and vegetable market has become the most serious outbreak since China said it had largely succeeded in controlling the pandemic.

Life in Beijing had mostly returned to normal after more than 50 days without a confirmed case.

But on Sunday, districts began to reimpose measures to control the movement of people. Restaurants and other businesses were again required to collect personal information of customers, only a week after such measures were relaxed.

The market at the centre of the outbreak has been closed and several residential compounds have been locked down.

In the months following the start of the outbreak in Wuhan, Beijing became one of the most difficult places in China to enter. All travellers to the city were required to quarantine for 14 days. Those restrictions were eased in May.

The new cases threaten to deliver a blow to the Communist party’s attempt to revive economic growth after output fell to its lowest level in a generation.

“The outbreak in Beijing was a shock to the Chinese government, and we believe the risk of a second wave in China rose significantly over the past weekend,” said Ting Lu, chief China economist at Nomura.

Many indicators of economic growth have shown positive signs in recent weeks. The National Bureau of Statistics said on Monday that industrial production in May rose 4.4 per cent year on year, higher than the previous month but still below some analysts’ expectations. 

Fixed-asset investment for the first five months of the year fell 6.3 per cent from a year earlier, a sign that investments in real estate and infrastructure were still suffering in the wake of the crisis. Growth in retail sales was down 2.8 per cent.

The spike in cases in China comes after a jump in US cases, prompting concern among investors. Global stocks fell sharply, with London’s FTSE 100 fell 2.2 per cent in morning trading after Asia-Pacific shares declining during on Monday.

 “Surging cases from China to [the] US are increasingly worrying investors that another economic shutdown could be around the corner for everyone,” said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank.

The full extent of the measures officials in Beijing and other cities will impose was unclear. Authorities in several Chinese cities have warned against travel to the capital, while some Chinese social media users said they had been forced into quarantine after leaving Beijing.

Several large hotels around China told the Financial Times they were still taking reservations for Beijing residents. But one travel agency in Chengdu said it had stopped booking trips for anyone from the city.

After enduring one of the world’s first lockdowns in the early days of the outbreak, some Beijing residents were exasperated at the notion of another period of high alert.

Others, however, were more stoical.

“The war against the virus isn’t over yet,” wrote a social media user on Chinese microblogging site Weibo. “Everyone needs to persist once again.”

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Macro :

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Lockdowns have speeded up shift to online beauty, says world’s largest cosmetics maker

The coronavirus lockdowns have sparked broad changes to how women discover and shop for beauty products by pushing more activity online, especially among older demographics who were previously wary, according to L’Oréal’s chief digital officer.

“The crisis has profoundly accelerated the digital transformation of the beauty sector,” said Lubomira Rochet in an interview.

“In ecommerce, we achieved in eight weeks what it would have otherwise taken us three years to do.”

L’Oréal, which is the world’s biggest cosmetics maker by sales, believes many of these consumer behaviours will last after the pandemic subsides. New marketing tools, such as virtual try-ons for make-up and hair colour and one-on-one beauty consultations via video chat, also proved their usefulness while stores were closed.

Even before coronavirus hit, the cosmetics sector was already further along in adopting ecommerce and digital marketing than other categories of consumer goods, such as grocery or household products.

Market leaders L’Oréal and Estee Lauder have spent heavily in recent years to boost their digital firepower, while newer celebrity-helmed brands such as Huda Beauty and Charlotte Tilbury have grown rapidly by wooing consumers on social media.

About 20 per cent of L’Oréal’s revenues now come from its own branded websites or those of online retailers such as Amazon or Walmart. In the first quarter to the end of March, the French group’s ecommerce sales grew by 53 per cent compared with a year earlier.

In contrast, Unilever, which sells packaged foods, household and beauty products, earned 8 per cent of its first-quarter sales online, while Nestlé, the world’s biggest packaged food manufacturer, recorded 10 per cent of its sales from ecommerce during the same period.

Beauty salons and department stores were closed during lockdowns, but some retailers through which L’Oréal usually sells remained open, such as pharmacies. Ms Rochet said that, initially, shoppers stocked up on personal care products such as Garnier shampoo, and later as they realised lockdowns would last, they bought hair dyes, nail polish and face masks to take care of themselves at home.

With some of its distribution channels closed, L’Oréal’s sales fell 4.8 per cent year on year in the first quarter on a comparable basis. Barclays forecasts a 9.2 per cent decline in revenues this year, before rebounding to grow 7.8 per cent in 2021.

Despite the dip in sales, there were some bright spots in the crisis. L’Oréal quickly shifted its advertising and marketing spending online, taking it to about 70 per cent of the total from 50 per cent before the pandemic.

As a result, ecommerce grew rapidly even in places where it was originally less developed. For example, in Latin America, online sales jumped 300 per cent in April, and in Africa and the Middle East they rose 400 per cent.

The crisis has also pushed more retailers through which L’Oréal typically sells its products to develop their own online offerings. Fifteen companies including Amazon, Boots, and AS Watson have added L’Oréal’s virtual try-on technology called ModiFace to their websites and apps. Consumers spent nine minutes on average using ModiFace to test out hair colour or foundation tones on themselves, up from two minutes before the crisis.

“ModiFace has been a big competitive advantage in the crisis for us,” said Ms Rochet, who convinced L’Oréal chief executive Jean-Paul Agon to buy the Canadian start-up in 2018.

Back in 2013, L’Oréal set goals for its digital transformation, which were for ecommerce to reach a fifth of group sales by 2020, and for half of its marketing dollars to be spent online. Those goals have now been achieved thanks to shifts in consumer behaviour wrought by coronavirus, and L’Oréal will now think even bigger on digital, according to Ms Rochet.

“We had targets for the second stage of our digital transformation but Covid-19 has changed the landscape profoundly, so we have to reassess them,” she said.

“We are setting ourselves up for a world where half of the business is ecommerce and 80 per cent of consumer interactions will happen online.”

L’Oréal’s shares now trade at valuations not seen since 2003 with a forward price-to earnings valuation ratio of about 35 times, according to S&P Global Market Intelligence. Its shares are largely flat this year, having recovered from a 21 per cent slump from January to mid-March.

Chinese giant seeks to make inroads into financial services in tie-up with influential family behind OCBC Bank

ByteDance is in talks to join forces with Singapore's influential Lee business family as it seeks to expand its broad universe of services into banking, a new area for the technology group. 

The Chinese company has bid for a digital bank licence in the Asian financial centre and is negotiating a tie-up with an investment group linked to the Lee family, best known as one of the founding families of OCBC Bank, south-east Asia's second-biggest bank by assets, said three people with knowledge of the situation. 

The Beijing-based company is best known for the global success of its video app TikTok, but like many other technology companies, it has been trying to make a move into financial services.

The Monetary Authority of Singapore is set to issue five virtual banking licences by the end of the year, for which ByteDance will compete with a number of other Asian technology companies including Alibaba's Ant Financial and smartphone maker Xiaomi.

For ByteDance, which has a valuation of $75bn and has traded far higher in the secondary market, a partnership with the influential family, which still holds a large stake in OCBC, would be a credibility boost. 

The Lees are one of Singapore's most well-known corporate families and derive a large part of their wealth through a stake in OCBC. Patriarch Lee Kong Chian is known as OCBC's founding father and was a long-serving chairman while various members of the family have held senior positions at the bank, one of the city's three top financial institutions.

The family has a number of businesses including Lee Rubber Group while charitable arm the Lee Foundation supports a number of charities, schools and other cultural projects. 

Some members of the Lee family have ties to government entities. Lee Seng Wee, son of Lee Kong Chian and another former OCBC chairman, was founding chairman of Temasek Trust, the philanthropic arm of the state-backed investment company. The Lee family is not directly related to the family of Lee Kuan Yew, Singapore's first prime minister. 

ByteDance has not publicly confirmed its involvement in Singapore’s digital bank process and declined to comment on the bid when contacted by the Financial Times.

A representative for the Lee Foundation and Lee Rubber said they were unavailable for comment at this time. OCBC, which counts family member Dr Lee Tih Shih as a board director, declined to comment on the matter.

ByteDance had previously explored applying for a virtual banking licence in Hong Kong, which last year also opened its banking sector to technology companies including Tencent and Alibaba.

The company does not operate a digital bank in China, where most virtual financial services are dominated by Tencent and Alibaba through their respective WeChat Pay and Alipay platforms. Instead, ByteDance considers places such as Singapore as better opportunities for disruption.

The push for a Singapore banking licence comes as the Chinese giant seeks to boost its footprint in Asia’s Lion City as a major hub outside of the mainland.

The company has applied for one of the three wholesale bank licences on offer, the people said, which would mean it would be limited to serving corporate clients including small and medium-sized businesses.

Critics have questioned the ability of the tech challengers to make inroads into Singapore, given that it is a small, well-banked market, home to some of the most digitally savvy incumbent lenders in the world.

But people close to the discussions said the wholesale applicants could potentially make the bank a more official hub for transactions involving other parts of the business, for instance for merchants selling products on TikTok.

In China, ByteDance has beefed up its ecommerce business to monetise traffic to its Douyin video app.

This thinking could also extend to Ant Financial, which is connected to Alibaba's vast global ecommerce ecosystem and has won the right to launch a digital bank in Hong Kong.