The virus is hitting China's movie theaters hard, and it's just one small part of the economy Beijing is scrambling to support

Seats in a theater display the Imax Corp. logo at a cinema in Beijing, China, on Thursday, Aug. 18, 2011.

Nielson Ching | Bloomberg | Getty Images

BEIJING — China’s movie theaters were ramping up for one of their biggest sales seasons of the year — hiring extra staff and buying more supplies — when the coronavirus hit.

The pneumonia-causing virus that emerged in late December began to catch national attention in mid-January, just ahead of the week-long Lunar New Year holiday. Seven films pulled their planned releases for the period, and now, most theaters have been closed for about two weeks.

It’s the biggest shutdown in about 20 years — even the SARS epidemic of 2003 didn’t have such a great impact, according to a manager at a local theater operator in a major city in southwestern China. The manager asked not to be named due to the sensitivity of the topic.

The closures are part of an effort to limit the spread of the virus as it’s already killed more than 1,000 people. But even when the virus is under control, it may be months before consumers have enough confidence to go out and watch movies in theaters again.

If authorities have tried in the last few years to talk up support for privately run businesses in a state-dominated system, the virus adds further pressure. Privately operated, smaller businesses contribute to well over half of economic growth.

Policymakers have less room for action than in 2003, since economic growth is slowing now, Bruce Pang, head of macro and strategy research at China Renaissance, said in a phone interview last week, according to a CNBC translation of his Mandarin-language remarks.

The services industries and their employees also play a greater role in the economy than 17 years ago, Pang said. He noted that the new virus primarily affects food and beverage businesses, while movie theaters will see an immediate loss in fees.

Pummeled instead of a windfall

The Lunar New Year box office accounted for about 9% of last year’s overall sales of 63.6 billion yuan ($9 billion), according to public reports compiled by Wind Information.

For theaters in more rural areas, the holiday can account for a fifth or a quarter of annual sales, the manager said, since it’s typically the only time many urban workers return to their hometowns.

The theater group has two other locations in more rural areas, including one that opened just before the Lunar New Year, the manager said. Each venue hired about five additional agents for the holiday, and the theater in the city used the occasion to complete needed equipment upgrades, the manager said.

Without moviegoers, the theater still must spend tens of thousands of yuan in rent a month, and tens of thousands of yuan more in salaries, the manager said. That’s at least several thousands of U.S. dollars out the door a month in a country where movie tickets can run for about $5 or $6 each.

Hope for policy support

Like many theater operators, the manager said the business is in conversation with property management about a reduction in rent for this time period. Already, commercial property operator Dalian Wanda has canceled management fees and rents for its shopping center tenants from Jan. 25 to Feb. 29, a reduction of more than 4 billion yuan, the company disclosed last week.

There’s also expectations that the government will step in given the severity of the situation.

“Some companies may not be able to make money in the first quarter,” Zong Liang, chief researcher at the Bank of China said in a phone interview last week, according to a CNBC translation of his Mandarin-language remarks. As a result, he expects tax cuts, among many other stimulus measures.

The People’s Bank of China has announced it will provide 300 billion yuan in low-cost loans for banks to lend to businesses affected by the virus. Several municipal and provincial governments have also announced measures for supporting small and medium-sized enterprises.

Faster assistance

The government’s efforts to support these businesses in recent years have not yielded optimal results.

Without an established credit score system, state-owned banks have preferred to lend to state-owned enterprises, rather than trying to determine how likely a privately run company could repay a loan. Analysts have also said attempts to boost support for these smaller businesses and lower interest rates have not always trickled through.

This time, though, Zong expects the urgency of the situation will push the system to work more quickly. He noted the overall scrutiny is not as strict as before, but liquidity is maintained.

“Of course, it doesn’t rule out there are companies that want to take advantage of it,” he said. But “most companies still have a strong sense of responsibility because of the (virus).”

State-owned Bank of China announced last week that a pharmaceutical company in Hubei applied for and received 150 million yuan in just two days. The bank has designated 2.17 billion yuan overall for fast-approval loans affected companies.

Fintech can offer another way to extend loans while limiting fraud. Alibaba-affiliated Ant Financial’s online lender MYBank claims a non-performing loan ratio of around a low 1%. The company announced Monday it will provide discounts on 10 billion yuan worth of 12-month loans — three months interest-free for borrowers from Hubei province, which is at the center of the virus outbreak.

In the near future, Qian Wang, chief economist for Asia-Pacific at Vanguard, expects authorities will give more credit support to the private sector and small businesses.

“While these policy measures are unlikely to be enough to completely offset the impact of the virus, they will help to strengthen the activity recovery or at least cushion the magnitude of slowdown,” Wang said in a statement to CNBC. She anticipates that when the virus is contained, business in retail and manufacturing may recover and help stabilize growth in the second half of the year.

Source: Business -

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