Coronavirus: China still seen as good opportunity for expansion by some foreign firms despite Covid-19

By Su-Lin Tan sulin.tan@scmp.com

/ https://www.scmp.com/economy/china-economy/article/3080917/coronavirus-china-still-seen-good-opportunity-expansion-some?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp&utm_content=3080917 |

April 28, 2020 12:09 PM SGT

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Not only has the coronavirus pandemic not watered down one company's expansion plans for China, it has given it even greater reason to push forward into the Chinese market.

Israeli company IceCure Medical is forging ahead with opening its first Chinese office in Shanghai, with plans to spend up to US$4 million for the initial sales and marketing effort for its non-surgical breast cancer treatments.

Chief executive Eyal Shamir said he has seen an uptick in Chinese interest in the company's ProSense product, which allows the freezing of tumours outside a hospital environment, because it can free up facilities badly needed for Covid-19 patients.

The government approval of the company's Chinese subsidiary is now only days away following a successful product console registration, according to Shamir, and it has already sold two units to the Fudan University Shanghai Cancer Centre for a clinical study.

"We are planning a full launch of the product in China for both breast cancer and breast benign tumours as well as other organs," Shamir said.

"Post Covid-19, there will be a backlog of many surgeries and not only for breast cancer patients."

IceCure Medical, though, is not the only foreign company eyeing expansion into China despite the risk of secondary outbreaks of coronavirus.

West of Shanghai, English shopping outlet company Value Retail is also expanding its retail space, banking on Chinese shoppers re-emerging from lockdowns to begin spending again.

Value Retail is proceeding with plans to enlarge its Suzhou Village shopping centre from 35,000 square metres (378,000 sq ft) to over 50,000 square metres, while also increasing the number of shops from 120 to 200, which will make it the largest of the 11 venues its controls globally.

It has been working closely with the Yang Cheng Lake Peninsula government over renovations, and was encouraged by a surge in retail sales at its centres in early April. The company's Chinese subsidiary, Value Retail China, attributed the rise to an increasing number of consumers wanting to "get outside" of their homes after being isolated for several weeks.

Suzhou Village sales have increased 40 per cent each week since the start of April, the company said.

"Thanks to the positive recovery [in spending] over the past several weeks, we are going ahead with the Suzhou Village expansion," the company said in a statement. "After being cooped at home for weeks, people want to be outdoors to enjoy the beautiful spring weather. We provide a shopping experience for guests in an outdoor environment ... the motivation for such an experience after isolation is huge. [Being] outdoors is seen as a luxury now."

In addition, customers are flocking to both its Suzhou and Shanghai Village centres as a form of domestic tourism because of the curb on overseas travel, Value Retail China said.

Despite the economic destruction that the coronavirus pandemic has caused in China, it also is opening up expansion opportunities for entrepreneurial firms in several industries, such as e-commerce and online delivery, life sciences and infrastructure construction, said EY Asia-Pacific transaction advisory services leader Harsha Basnayake.

However, while businesses within Asia-Pacific expressed a desire for opportunistic expansions, most companies still held a pessimistic view of economic recovery that would drag on into 2021.

American companies already operating in China were even less optimistic with over 70 per cent of businesses surveyed by the American Chamber of Commerce in March saying they were reluctant about expanding in the coming year.

"We are expecting opportunities in real estate, particularly in commercial property and logistics, and we think industries in life sciences, some parts of health care and infrastructure will be interesting," Basnayake said.

"Although it is too early to say if retail property will rise " particularly when we are seeing new habits forming, going from shopfronts to online and how far this new behaviour will stick. China will gives us lots of lessons on this."

The Chinese government's move to increase infrastructure spending to boost the economy will also benefit certain industries, such as cement production.

Despite suffering a 24 per cent drop in sales in the first quarter due to virus-related delays in construction activities, China's largest cement manufacturer, Anhui Conch Cement, is likely to move forward with plans to expand in part due to its participation in the Belt and Road Initiative, according to analysts at S&P Global.

Desires to expand are also not limited to these industries, and even the hard-hit hotel industry is starting to show green shoots.

International hotel chain IHG said that the coronavirus would not derail its new Regent-branded hotel project in Chengdu, which is expected to start construction later this year.

"Though no one would be able to tell exactly what will happen when the Covid-19 uncertainties are not completely gone, signs of recovery in China have brought encouragement to us," said Regent Hotels & Resorts managing director Justin Channe.

"While we saw business pickup across China over the past Qing Ming Festival holiday, Chengdu and its nearby destinations were among the leading ones. In the long run, we stay confident of the outlook for the China hotel industry, including the luxury segment."

Beyond the crisis, there will be ample opportunities for new merger and acquisitions (M&A) amid business restructures and failures, particularly in China, Basnayake added.

A new EY survey found 52 per cent of Asia-Pacific businesses planned on pursuing M&A in the next year.

"While the crisis is having a severe impact on M&A sentiment, there's evidence from the survey that M&A activity intentions remain steady in the long term. There are many who recognise this is a time where valuations will be reset, and there will be stressed and distressed acquisition opportunities," Basnayake said.

"For example, from our interviews with corporations in China, a majority said that Covid-19 has not impacted their M&A strategies, noting that the situation has not led to any cancellations or withdrawals from deals, but only in delays in closing deals."

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This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.

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