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Despite China’s tech giants’ support, these promising startups have failed to survive the coronavirus pandemic

Startups have proved vulnerable to the economic fallout of the COVID-19 outbreak.

Source: shutterstock.com

The COVID-19 outbreak has created unprecedented difficulties for China’s economy, with regulators halting businesses and events, and telling people to stay home. While large established companies were better prepared to weather the financial impact, some startups were especially vulnerable to the impact of the pandemic.

Although backed by China’s tech titans including Alibaba, JD.com, Meituan, and Trip.com, several Chinese startups have failed to make it to the next spring, and have instead shut down operations.

Wujiang Hotels, a hotel chain backed by China’s largest online travel agency Trip.com (NASDAQ: TCOM), announced on March 27 that it will suspend operations due to the impact of the coronavirus outbreak and terminate all employee contracts on April 30.

Wujiang’s chairman Ma Xiaodong said in an internal announcement that since the Chinese New Year the entire tourism and travel industry has been ravaged by the global health crisis. This has disrupted the firm’s plans for future development and has rendered his company unable to sustain operations, he added.

Founded in 2019, Wujiang Hotels had a registered capital of USD 30 million after a strategic investment from Trip.com. Targeting the mid-level and premium hotel markets, Wujiang had assembled five hotel brands covering eight cities including Shanghai, Shenzhen, Chongqing, and Guilin, with room prices ranging from RMB 200 (USD 28.28) to over RMB 1,000 (USD 141) per night.

Other than newly-founded Wujiang, some older companies in the travel industry have also been forced to shut down.

Backed by Chinese internet giant Alibaba (NYSE: BABA), Chinese outbound travel service provider Baicheng declared bankruptcy in late February. The 20-year-old company announced that it was unable to stay afloat due to deteriorating cash flow, as almost all of their income sources have evaporated.

Founded in 2000, Beijing-based Baicheng provided travel services including airplane tickets and hotel booking, visa processing, and sightseeing packages. Alibaba participated in the company’s Series B financing round of USD 20 million in 2014, according to enterprise data provider Tianyancha.

In April 2016, Baicheng was listed on the National Equity Exchange & Quotation (NEEQ), also known as the New Third Board, which is designed for innovative startups, focusing on high-growth micro, small and medium-sized enterprises. However, Baicheng only remained listed on the NEEQ for three years.

Many firms are heavily hit amid the coronavirus outbreak. Source: shutterstock.com

Companies in other sectors have also been forced to shut down. JD.com-backed Meili Auto, a secondhand car financial services platform, announced that it has terminated contracts with its employees and ceased operations on March 16. The company said the outbreak made it difficult to resume normal operations, adding that, due to a cash shortage, affected workers will receive only the minimum wage for January and February.

Meili Auto, which was founded in 2014, focuses on helping individuals obtain used car loans from traditional financial institutions. JD Digits, the fintech arm of JD.com (NASDAQ: JD), made strategic investments in this company in April 2016.

The firm once intended to list on the New York Stock Exchange and submitted a prospectus to the US Securities Regulatory Commission (SEC) on October 31, 2019. However, only half a month later, the company was subject of a predatory lending investigation affecting its founder Liu Yannan, along with multiple senior executives, Caixin reported.

Meituan Open Services, the cloud computing arm of China’s on-demand service giant Meituan Dianping (HKG: 3690), also announced on March 12 that it will terminate the service and user support for its public cloud service on May 31, KrASIA wrote. The company said the termination is due to a “business adjustment,” without revealing further details.

Meituan first launched the service in 2013 to offer cloud computing solutions to companies, focusing on the catering, hotel, and travel industries. The cloud computing unit was then spun off in 2015.

The food delivery giant itself reported a gloomy outlook for the first quarter of 2020 and expected negative year-over-year revenue growth and an operating loss for the quarter, as the food delivery business also faces significant challenges on both the demand side and supply side, the company said in its latest financial report.

However, as China slowly recovers from the COVID-19 pandemic, industries like robotics, education technology, supply chain logistics, and frontier technologies, have continued to receive investment, showing that venture capital and fundraising in China’s dynamic startup ecosystem remains resilient.