Tag Archives: service industry

Can China become consumer-driven?

As most of you have already heard by now, China’s economic growth in 2014 have slowed to levels not seen in over 20 years: a mere 7.4%, Wall Street Journal reports.  Raising concerns of diminishing global demand for commodities which could weaken the global economy as a whole.

China’s growth in the past few decades, since Deng Xiaoping opened China to the world, has been one of the greatest success story of economic reform and policy in recent history. Fueled by rapid industrialization and infrastructural development, China’s GDP is over 10 times larger than what it was just 20 years ago. Many economists have questioned how long China can sustain it’s growth. And alas, China has slowed down. Despite falling oil prices, the IMF predicts that China’s growth in 2015 will be as low as 6.8%

China’s government is on top of this issue, with President Xi Jinping saying that the nation needs to adapt to a “new normal” in the pace of economic growth and remain “cool-minded” amid a slowdown that analysts forecast will lead to the weakest expansion since 1990. (Bloomberg)

Furthermore, President Xi aims to steer China’s economy away from industry-driven growth to a more sustainable consumer-driven growth, like the United States and many fully developed western countries. But this will be no easy task. According to the CIA World Factbook‘s 2013 data, China’s GDP composition consists of 10% in agriculture, 43.9% in industry, and 46.1% in services. Compared to the U.S.’s which consists of 1.1% agriculture, 19.5% industry, and 79.4% services; United Kingdom’s consists of 0.7% agriculture, 20.5% industry, and 78.9% services; and many other developed countries share a similar spread. We can see a huge disparity in the proportions where China’s agriculture and industry is far ahead but services lag behind.

Yes, China’s growth has put more money into the consumer’s hands; yes, the Chinese are now spending more than ever on luxury goods and services; and yes, China is heading towards that goal. But there are also huge social issues that need to be addressed. In my trip to China last year, I have seen that much of China’s growth has been in urban environments, resulting in huge migrations of people into industrialized urban zones. This leaves rural area even more underdeveloped, creating huge income gaps. Cost of living in urban environments have also gone up; in places like Beijing and Shanghai, consumer goods cost even more than the U.S. In rural towns, however, there have not been much change. The Chinese government is aware of these issues and have increasingly made efforts to develop rural zones, but it doesn’t seem enough. Another issue is that the Chinese generally have a saver’s mentality; a lot of us emphasize saving now so that we can have more later. To top it off, the Chinese government is reluctant to adopt stimulus policies; though I am assuming this is because of the saver’s mentality, stimulus packages will not have much of an effect on consumer spending.

China’s endgame seems to be a consumer-driven economy. But as of now its rural zones still require large amounts of infrastructural development. To juggle industrialization in rural zones and de-industrialization in urban zone will surely be a challenge.


More harm than good? Are companies like Uber really a good thing

Transportation, cleaning services, and even data entry all at the touch of a finger. Welcome to the 21st century. At first glance this seems like a great thing. I mean who doesn’t enjoy having the ability to order a ride from anywhere to anywhere at just the touch of a finger. With the rise of these apps and services, the landscape for many historic industries, like taxi cabs, is drastically changing. This is not necessarily a bad thing, the market is suppose to force out businesses that are not able to innovate to keep up with the changing demands of the market place. Much of the American economy, and capitalism for that matter, is structured around who can do something the best for the cheapest. Those are the companies that are suppose to thrive. There is, however, a great deal of controversy surrounding these new app based on-demand services. The controversy is arising, primarily relates to the treatment of the employees that are fulfilling all of these new roles.

“Current and former workers for Uber, Amazon Inc.’s Mechanical Turk and Handybook, better known as Handy, say on-demand work platforms give them little control over the terms of their labor, and complain that the contracts they’re required to accept force them to shoulder personal and financial risk without the returns or advantages they’d hoped for” (Weber, Silverman, 2015).

One of the main purposes of having a job is to provide stability for the employee and their family. With consistent biweekly paychecks, employees are able to determine whether the job provides enough to support themselves, and their potential family. They are able to make sure that their paycheck covers the necessary expenses, like rent, groceries, and insurance costs. This is not the case anymore with these new app based services, hopefully with a little extra to be put in the bank. Work hours are always fluctuating, and people can be terminated at any point, with the companies knowing that the job will always be filled.

Another main issue with these services, aside from job security and loyalty, is that these companies do not face the same regulation that other companies face who have employees rather than contractors.

“App-enabled workers don’t fit neatly into a regulatory landscape that recognizes only two types of worker: employees in traditional work relationships and independent contractors. Employees are generally covered by protections such as minimum-wage and antidiscrimination statutes, workers’ compensation, and union-organizing rights, while the latter have no such protections” (Weber, Silverman, 2015).

Lack of minimum wage requirements present the possibility, although rare, of earning less than minimum wage. For one firm, employee pay dipped as low as two or three dollars an hour, and even included non-monetary payments like reward programs and credits (Weber, Silverman, 2015). In a nation where the minimum wage is under a great deal of controversy for being too low, working for a company without fixed pay and the possibility of earning less than minimum wage can be extremely frightening. Although the convenience levels associated with these services are extremely high, the lack of stability these organizations are creating in the job market seems to be creating a system that does more harm than good.