Shanghai Covid crisis puts China tech on eggshells

Shanghai Covid crisis puts China tech on eggshells

HONG KONG (Reuters Breakingviews) - Financial elites are confronting a once-unthinkable problem in modern China’s wealthiest city: widespread food shortages. Officials in Shanghai have called on Meituan (3690.HK) and other food delivery apps to help feed the city’s 26 million residents under strict Covid-19 lockdowns . It’s a chance for the companies to win political brownie points and new users amid regulatory crackdowns.

A “zero tolerance” Covid policy is pushing the financial centre home to regional bases of Tesla (TSLA.O), Apple (AAPL.O) and other multinationals to the brink. For nearly two weeks, most of the population has been confined to their homes with no end in sight. Reports of healthcare workers beating a corgi to death, a woman committing suicide after being accused of paying too little to a delivery worker and other tragedies are fueling public outrage. 

The country’s e-commerce giants are responding. Executives from the $123 billion Meituan, Alibaba (9988.HK) and JD.com (9618.HK) have made rare appearances alongside government officials in press conferences to detail what they are doing to ease distribution and last-mile delivery bottlenecks. Meituan has deployed self-driving trucks, recruited staff from other regions and rolled out a new emergency medical feature on its app.

Financial returns look slim, however. It’s unlikely the apps can capitalise on surging demand: draconian restrictions have drastically reduced the number of couriers in China’s most populous city. Meituan and peers are operating at an estimated 10% to 20% of normal capacity, an industry executive told Breakingviews last week. Moreover, the costs of arranging hotels and daily Covid tests for drivers, securing special permits for trucks and clearing other administrative hurdles will add up. Last year, the operating margin at Meituan’s food delivery business was just 6.4%.

Meituan boss Wang Xing and peers have good reason to get politicians onside. They are already under regulatory pressure to cap fees and improve labour conditions. But performing a public service is fraught with risks too. If a company is seen as profiting too much, not doing enough or overstepping its remit, it will attract public and official backlash. China’s technology giants are walking on eggshells.

CONTEXT NEWS

- Shanghai reported nearly 25,000 locally transmitted Covid-19 infections on April 10, with 1,006 classed as symptomatic and 23,937 as asymptomatic. Only healthcare workers, volunteers, delivery personnel or those with special permission are allowed to move freely in the city.

- During a press conference on the same day, Wang Wenbo, a vice president at Chinese e-retailer JD.com said the company is focused on basic foodstuffs and baby care items. Xiao Shuixian, senior vice president at Alibaba’s Ele.me, said at the same briefing it has brought in 2,800 more delivery workers in the past week.

- Separately, Meituan Vice President Mao Fang on April 7 said that the food delivery company would bring in 1,000 sorting workers from outside the city as part of efforts to speed up deliveries.