1 in 5 intermediate products required for manufacturing (chemicals, machinery, car parts, etc) come from China. So naturally, you might expect B2B cross-border money transfers to suffer from the Covid-19 lockdowns.
TransferGo’s B2B payments data was in tandem with this trend—at least in February—before the unexpected happened; we noticed unusual growth in B2B cross-border payments from Europe to China in March. To levels that surpassed our pre-Covid-19 numbers by half.
As the saying goes, ‘the easiest way to uncover a trend is to follow the money’. I made up that saying, but that’s what we did.
Here’s how we started with the money and ended up in shipping docks and warehouses.
February B2B cross-border payments
Our month-over-month data showed almost a 10% drop in B2B remittances to China in February compared to January. February was when the world awoke to the existence of Covid-19 and China moved to contain its spread. Hence, a drop in February B2B payments seemed logical.
A recent report by the United Nations Conference on Trade and Development (UNCTAD) revealed a drop in China’s manufacturing Purchasing Managers Index (PMI).
The PMI is a survey of purchasing managers and is an indicator of a country’s economic direction and production levels. China’s PMI fell by 22 points in February. And when extrapolated, represents a 2% drop in intermediate goods when spread throughout the year.
Days after the release of the UNCTAD report, China’s General Administration of Customs painted a much more dire picture. They released data that showed a 17.2% drop in combined January and February 2020 exports. A direct impact of Covid-19.
February became a month of factory closures, stalled production and empty docks as lockdowns extended the Lunar New Year holidays. The Shanghai Containerized Freight Index also corroborated the trend, showing a drop in shipping containers in February.
March B2B cross-border payments
From the precedence that February set, the expectation would be for B2B payments to continue the drop. But that didn’t happen. Instead, March’s B2B remittances to China showed a ridiculous jump of 140% from February’s numbers.
Slapping us with more curiosity, this number was higher than pre-Covid-19 remittance levels.
Follow the money and see what’s happening in other industries, right? Let’s prove that.
China’s National Bureau of Statistics released the country’s March PMI and it also showed an increase beyond pre-Covid-19 levels.
Image Source: National Bureau of Statistics of China
For context: when the PMI goes beyond 50, it usually indicates economic expansion while a contraction accompanies a sub-50 PMI. So why the increase?
Well, as China was locking down in February, so were tonnes of ordered goods that were stuck at the ports. However, from the last week of February and into early March, workers started filing back into ports and releasing goods.
Look at figure 1b above—Shanghai shipping containers indicators— you’ll see week 8 (February) with more container departures than pre-Covid-19 January.
This trend of volumes higher than pre-Covid-19 levels is consistent with our March B2B cross-border payments data. Additionally, reports from Cargometrics, a global maritime trade analytics company, reflected this—showing an increase in ship movement in March.
Furthermore, China’s General Administration of Customs also released March export data that reflects improving overseas trade. In the data, although exports still declined in March, the rate of decline was almost 3 times less that of January & February.
It may be that China’s port decongestion and manufacturing recovery rippled throughout the supply chain. And eventually, we picked it up in payments.
What could this exponential March increase in B2B payments and goods production mean for the rest of 2020?
Is business—and subsequently, payments—set to boom, despite Covid-19?
What the future holds for B2B cross-border payments as a result of Covid-19
According to China’s Ministry of Industry and Information Technology (MIIT), 71.7% of SMEs were back to production by March 25th.
These Small and Medium-sized Enterprises (SMEs) form the majority of exporters and are on the receiving end of Europe-China remittances.
Nonetheless, despite a recovery in Chinese manufacturing, demand in Europe is dwindling as lockdowns continue. If this persists, going forward into 2020, the China-Europe B2B cross-border payments trend is likely to be downward.
One indicator of this is container shipping lines that have cancelled 212 sailings so far. The majority of those being in the Asia-Europe route. This is due to shipping lines trying to stop a price collapse amid falling cargo volumes as shippers cancel orders.
The cancelled sailings cover the next three months. This is when Europe’s B2B payments will likely be impacted.
How is your business dealing with these changes? What has following the money uncovered for you?