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Restaurants in China are in a Tail Spin as a Result of Coronavirus

A new report suggests nearly one-third of small businesses in China may not survive the next month.
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Fears of the potential coronavirus pandemic have people around the world gravely concerned about the health risks presented by COVID-19, and its nearly impossible to purchase hand sanitizer and masks in local stores. But, according to a new report by The Washington Post, the hardest-hit businesses are restaurants in China.

As any small restauranteur will tell you, the economics of managing a kitchen with fresh food by using cash income from diners is a delicate balance. For context on just how grave the situation is in China, WaPo's article opens by featuring a small town restauranter named Yao Tonghua who is facing a "serious cash crunch" as a result of coronavirus fears.

"Yao borrowed heavily two months ago to put down $10,000 for a five-story building she hoped would become a palace of Sichuan cooking. Then came the epidemic. Her seven cooks now lounge around empty tables meant for 100 diners. Vegetables rot in the yard. Fish bob inside tanks, neglected.

'I thought the disease was confined to Wuhan and would have little impact on a small and far-flung city like ours,' said Yao, who is contemplating laying everyone off and selling the restaurant to stem mounting losses but is worried she wouldn't find a buyer. 'This is getting more and more hopeless by the day.'"

It's not just restaurants that are hurting either. In a nationwide survey taken just last month, Peking University found that half of China's small businesses, in general, will run out of cash in the next three months—and one in seven may go out of business entirely in the next few weeks.

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Reporting for the Post, Gerry Shih writes:

"Several weeks into an epidemic that brought the country to a standstill, Chinese officials and economists are increasingly worried about the devastation wrought on a crucial part of the economy: restaurants and retailers, karaoke halls and family-owned factories—countless small and midsize businesses that collectively employ 80 percent of China's workers and produce 68 percent of the country's business revenue.

'Only 30 percent of small and medium businesses nationwide have resumed work,' Shu Chaohui, an official at the Ministry of Industry and Information Technology, told reporters Tuesday. 'It's a pretty severe situation.'"

A Peking University economist told WaPo, "If people don't eat at restaurants, that doesn't just affect the restaurant but also the seafood supplier or farmer. If people don't shop for clothes, that affects the silkmaker and weaver. The economic impact isn't contained; it sends ripples up level by level."

TBD if and when a similar chain of events will go down here in the U.S. But one thing's for sure: It's not looking so good right now.

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