A chef prepares a food delivery order at Wangfujing Quanjude restaurant on March 5, 2020 in Beijing, China. Zhao Jun | China News Service | Getty Images

BEIJING — In an indication of how deep the economic shock of the new coronavirus is, many of China's hardest-hit businesses are still struggling because their workers haven't returned. Meanwhile, many employees are getting their wages cut. Officially called COVID-19, the disease that emerged in the city of Wuhan in late December has since spread around the world in a global pandemic that has killed more than 4,600 people worldwide. The majority of deaths so far have been in China, which extended a Lunar New Year holiday shutdown by at least a week in more than half of the country in an effort to limit the virus' spread. Over a month later, the number of new cases has dropped drastically. Still, local governments are keen to prevent the highly contagious virus from re-emerging. Authorities have enacted strict, if sometimes confusing, measures to limit travel, quarantine visitors for 14 days and ensure people wear face masks when they go back to work. The economic strain of the virus' disruptions will likely cause 9 million people in China's cities to lose their jobs this year, with about 60% of them from the services industry, estimates Dan Wang, analyst at The Economist Intelligence Unit. For 18 million to 30 million people in urban areas, they will likely see wages cut by 30% to 50%, she said.

Lack of returned workers

While state-owned companies and large industrial businesses have officially resumed work at a rate of around 90% or higher, small and medium-sized enterprises outside the virus' epicenter of Hubei province have only resumed work at a rate of about 60%, China's Ministry of Industry and Information Technology said Friday. For the smaller, privately-run businesses, that pick up in work is an improvement from just over 50% this time last week. Travel restrictions and mandatory quarantines have made it difficult for many people to get back to work. Businesses still face problems such as the inability of people returning to work, as well as stalled logistics operations, Xin Guobin, the ministry's deputy head told reporters, according to a CNBC translation of his Chinese remarks. He noted that small and medium-sized companies also lack capital and protective gear, while the resumption of work and production for businesses in the same supply chain are not in sync.

The return of (the) labor force is definitely a key factor why the recovery rate is so low for the recovery of the restaurant business. Gao Huan senior director at Alvarez & Marsal in Beijing

Within small businesses, one group the Chinese government has specifically talked up support for is the "80 million 'household' businesses that employ more than 200 million people nationwide." New policies include tax cuts and special loan terms. Among the 20 million enterprises in China's food and beverage industry, more than 95% of them fall into that "household business" category, according to analysis released this week by Qichacha, which runs a business information database.

Food and beverage struggles

These restaurants, bars and other eateries have felt the most immediate impact of the virus, many analysts point out. Anecdotally, even as Beijing's streets get busier by the day, there are still many stretches of closed storefronts, mostly restaurants. The municipal government has banned large group meals, and many restaurants that have managed to open are only allowed to seat two or three people together.

Not only are sales far below what they were last year, but the food and beverage industry is "extremely short of staff," said Gao Huan, a senior director focused on retail and manufacturing at consulting firm Alvarez & Marsal in Beijing. She noted anecdotally how many restaurant owners have to work in their own store kitchens right now. "The return of (the) labor force is definitely a key factor why the recovery rate is so low for the recovery of the restaurant business," Gao said. She estimates only about 40% are open, and some 20% of workers have returned. It's unclear what the exact return to work rate is, but the food and beverage industry is one part of the services sector that hires many people from less developed parts of China. For the poorest households in the country, the number of migrant workers who had returned to their jobs as of Mar. 5 was 52% of what it was last year, at 14.2 million, Su Guoxia, spokeswoman of the State Council's Poverty Alleviation Office, disclosed at a press conference this week.

Wage hits

The food and beverage industry isn't the only one dealing with employment challenges. The post-Lunar New Year period is typically a peak period for job changes, but Chinese recruitment platform Moka said its clients — which are mostly larger companies and internet firms — and job applicants are more conservative this year. In addition, new jobs typically offer a 20% to 30% pay raise, but for the first half of this year, there's little change in the offered salary, content marketing manager Yu Tingting said in an interview. Foreign firms in China, while getting back to work in-person or remotely, are also trying to cope with travel restrictions and slower economic growth in the country. Steven Lynch, managing director of the British Chamber of Commerce, said many member companies are cutting wages by roughly 25% to 50%. While some companies have benefited from government support, he noted that small and medium-sized enterprises are generally still struggling. "They haven't had money coming in for the last few months," he said. "A lot say they're close to going under because there's no customers coming in."

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