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Reviving Wuhan

In the post-epidemic period, Wuhan is being encouraged to switch its focus to emerging and high-tech industries to bolster its economy and improve livelihoods, amid warnings of unemployment and bankruptcies

By NewsChina Updated Jul.1

A worker disinfects a high-speed train at a maintenance center in Wuhan, Hubei Province, April 7, 2020

On April 8, China eased the lockdown in Wuhan, capital of Hubei Province, which had been at the center of the outbreak of the novel coronavirus after a siege of 76 days, allowing outbound travel for the first time, with strict controls. On May 2, the province downgraded its emergency response level from the highest to the second-highest, coinciding with the five-day May Day holidays.  

After taking an enormous economic hit, Wuhan authorities released a package of preferential policies to attract businesses and investment to inject more stimulus into the city’s economy. An online investment fair held to mark the easing of restrictions on April 8 saw 69 major projects inked with a focus on smart manufacturing, biological medicine, financial insurance and electric vehicles, attracting investments of 245 billion yuan (US$34.6b).  

The number of confirmed cases in Wuhan began to drop in early March, allowing authorities to prioritize work resumption with strict safety guidelines. On March 11, Wuhan issued a circular allowing enterprises involved in the national economy and people’s livelihoods, such as agricultural production and disaster prevention to resume production. Other enterprises that have an impact on national and global industrial chains were allowed to restart on condition that safeguards were in place. 

Work Resumption
Dongfeng Automobile Parts Enterprise was one of the first companies in Wuhan to resume. After the plant was granted permission, He Wei, head of the enterprise, went to the factory and sent out products which had been in storage for more than two months. “It cost us 29,900 yuan (US$4,222) in delivery fees, nearly five times higher than normal,” he told NewsChina. 

He said he felt lucky because if work resumed even 10 days later, the economic losses would have been enormous. “I wasn’t afraid of the lockdown. I was worried most about the different times the lockdowns were ended [in different places],” he said. One company in Wenzhou, Zhejiang Province had canceled its orders because it resumed work earlier. The pandemic had caused unprecedented pressure he had not seen since the global financial crisis of 2008.  

Work resumption in Wuhan was postponed several times. Han Leming (pseudonym), a member of the People’s Political Consultative Conference of Wuhan Economic and Technological Development Zone, is in frequent contact with local enterprises and is fully aware of the epidemic’s impact on businesses. “About 30 to 60 percent of enterprises are facing bankruptcy due to lack of orders since the epidemic started,” he said. 

According to a survey conducted by Luo Zhi, director of Wuhan University’s New Private Enterprise Economy Research Center, more than 97 percent of enterprises in Wuhan completely or partially halted production during the epidemic, 57 percent of enterprises are on the brink of bankruptcy, and 40 percent of enterprises have seen their market share decline. She delivered a report to the local government which cautioned that “More than half of the city’s small- and medium-sized enterprises (SMEs) are likely to be closed if work resumption is later than late March.” 

Enterprises above a designated size in Wuhan resumed work earlier than SMEs. Designated size in China means firms with an annual revenue of 20 million yuan (US$2.82m). “Work resumption rate is not the same as production resumption rate. Many enterprises which have resumed work have not started production at full capacity,” Han said. He added that there are many factors affecting the work resumption rate, including declining orders and higher logistics costs. 

“During the lockdown, enterprises were eager to start back up, and every day many applied to resume, but not all of them could be approved,” said Qian Deping, deputy director of the Construction Management Office of the Wuhan National Bio-industry Base, also known as Biolake. 

Occupying an area of 518 square kilometers, Biolake is home to 100,000 enterprises in eight key sectors, including opto-electronic information, biological medicine and high-end equipment manufacturing. Even after Biolake firms reopened, they faced problems including staff shortages and a lack of orders.  

“The epidemic is the biggest crisis and challenge for me since I established the company,” Yi Kaijun, general manager of Hongshi Technology, told NewsChina. “We pretty much halted production during the epidemic. Orders worth at least 150 million yuan (US$21m) were affected and our sales volume dropped by 80 percent year-on-year.” 

Hongshi is one of the few suppliers of iris recognition chips in the world. During the epidemic, the company invented a smart community epidemic prevention system based on its iris recognition technology. 

“Except for anti-epidemic products, sales of products on other assembly lines were seriously affected,” he said. Because of difficulties in the supply chain and logistics, orders placed before the Chinese New Year in January could not be manufactured, and now there are no new orders. 

The global spread of the pandemic has affected international supply chains and logistics, making it more difficult for SMEs to resume production. “We need special raw materials and reagents from abroad but the logistics are the main hindrance now,” Wu Ke, CEO of vaccine developer BravoVax, told NewsChina. 

As of April 3, all enterprises above the designated size at Biolake have resumed production, and close to half of SMEs have resumed production, mainly in the area of epidemic prevention. 

Workers have lunch while seated 1.5 meters apart at a Honda vehicle assembly line in Wuhan, Hubei Province, March 25, 2020

Brain Drain
Wuhan is home to nearly 90 universities, 100 research institutes and more than 1.3 million college students. It has prioritized the knowledge economy, including encouraging graduates to remain in the city, giving it access to a large pool of talent. This allowed it to establish leading institutions and enterprises in strategic and technology-intensive industries. 

Wuhan has four of the first 66 national strategic emerging industry clusters, the city with most clusters nationwide. Wuhan geospatial information and its application innovation service cluster have beenadded to the list of national innovative industrial clusters. 

“Industry hinges on technology. The economy hinges on industry. Overall strength hinges on the economy,” said Wu Chuanqing, deputy director of the China Institute of Development Strategy and Planning at Wuhan University.  

According to Wuhan Mayor Zhou Xianwang, more than 5 million people had left the city before the lockdown on January 23. In the meantime, more second-tier cities introduced new preferential policies during the epidemic to attract skilled professionals, placing Wuhan in an awkward situation. 

“Biolake has many high-tech enterprises and the skilled workforce plays a crucial role. If there’s a brain drain, there’s really no way out for enterprises,” said Qian Deping, deputy director of Biolake’s Construction Management Office.  

Qian said that Wuhan, which sits astride the middle reaches of the Yangtze River in Central China, is only several hundred kilometers away from several other major cities, such as Zhengzhou in Henan Province. It only takes one or two hours to reach them on a bullet train. Despite being a transportation and industrial hub, the average annual income in Wuhan is relatively low in comparison with coastal cities and even not more attractive than its neighboring cities such as Zhengzhou, so staying in the city is not the first choice for many Wuhan graduates. After the virus, he said, the brain drain is likely to accelerate.  

Wu Chuanqing is more optimistic. He argued that Wuhan has its own strengths which are irreplaceable, such as the photoelectronic industry, the Beidou satellite navigation system, China’s answer to GPS, and biotechnology. “Investors cast their eyes at Wuhan because of its strength in science and technology and supporting industrial advantages,” he said. “They are not likely to leave simply because of the two-month lockdown.” 

According to Peng Zhimin, a researcher with the Hubei Academy of Social Sciences, the emerging economy driven by the internet, 5G, artificial intelligence and the Internet of Things has become a priority for a growing number of provinces across the country, yet there is a noticeable digital divide among provincial regions. 

“Most leading high-tech enterprises are in the first-tier cities of Beijing, Shanghai, Guangzhou and Shenzhen because these cities have obvious advantages in infrastructure, financial investment and more attractive talent policies,” he said. “There are few universities in Shenzhen, but the innovation capabilities of enterprises are very strong. The main reason for its success is the ability to attract talent from all over the country and even internationally.” 

Peng argued that after the epidemic, economic development in Wuhan should switch its focus to emerging industries so it is not outpaced by other provinces. 

Data from the Wuhan Bureau of Statistics shows that the city’s general public budget revenue in January and February of 2020 was 53.86 billion yuan (US$7.6b), a decrease of 31.8 percent year-on-year. According to Luo Zhi, director of Wuhan University’s New Private Enterprise Economy Research Center, the lockdown in Wuhan has exerted a great negative impact on the local economy, even though there is no official data. She has studied GDP losses due to the lockdown as well as losses to the manufacturing and the services sector in the city. 

Luo argued that the lockdown has caused a noticeable decline in household and government consumption, capital formation and exports. She estimated that at best, GDP losses will be 241.8 billion yuan (US$34b) and the worst-case scenario will be losses of 341.8 billion yuan (US$48b). 

On April 10, Wuhan held another online promotion event for 100 key projects including electronic information, automobile manufacturing and modern services with a total investment of 187 billion yuan (US$26.4b). 

Luo does not advise the government to spur GDP growth simply through investment because this will have no effect on bankruptcy and unemployment in the long term. The dining sector has been hard hit, and it will take a long time to recover.  

In March, nearly 100 restaurant owners in Wuhan delivered a public letter to the government appealing for help. The letter stated that 95 percent of small and mid-sized restaurants in the city are suffering losses or are on the brink of going into the red. It proposed several methods to help, including rent reductions, subsidies to employees, loans with discounted interest and the issuance of consumption vouchers.  

Luo said Wuhan has a population of 14 million, and if each person was given a voucher for 1,000 yuan (US$141), it would drive a consumption of 23.9 billion yuan (US$3.4b). She added that the government should prioritize public livelihoods and protect enterprises by cutting the unemployment rate and shielding businesses from bankruptcy, while stimulating consumption to shore up public confidence. 

“No matter how beautiful the GDP figure looks, the public will lose faith in the local economy if unemployment is rampant,” she said.