Pacific Money | Economy | East Asia

What’s Behind China’s ‘Street-Stall Economy’ Discussion?

China must take care not to let the current trend follow the pattern of the bicycle-sharing fiasco.

By Chan Kung and Yu (Tony) Pan for
What’s Behind China’s ‘Street-Stall Economy’ Discussion?
Credit: Pixabay

Over the past few weeks, “street-stall economy” has become a much-discussed term in China. In his recent speech, Chinese Premier Li Keqiang praised and voiced his support for such an economy, which acts as a lifeline for Chinese local governments seeking effective economic growth, to stimulate employment and respond to the current economic crisis.

What should we make of the shift?

Back in 2016 the bicycle-sharing system, like the street-stall economy today, was the fad had caught the attention of Chinese local governments. To local officials, the bicycle-sharing system and later on, the “sharing economy” as a whole had the potential to become the next growth point in China’s economy. Consequently, local governments invested many resources to encourage the sharing economy, even placing urban environment under strict control to pave the way for it by re-adjusting urban planning. The governments’ efforts eventually made the sharing economy popular. For a time, shared bicycles were rampant in China. This trend changed citizens’ day-to-day travel, and helped governments ease the issue of overwhelming traffic. It also fit the motif of energy conservation, being eco-friendly and having low-carbon emission. Hu Weiwei, founder of Mobike, was an extreme example of the fad: in under three years, the young reporter secured nearly 100 billion Chinese renminbi in funding and rose to fame as the CEO of her own bicycle-sharing company.

However, the concept of bicycle-sharing and its actual operation are two different things, and cities could only bear so much of the costs. In less than two years, bicycle-sharing became a problem for many urban managers. Conflicts about deposits broke out in the market, followed by a lack of supervision in business operations, which led to issues such as financial fraud, bicycles being parked at random spots, and traffic jams. Many cities introduced policies to confiscate bicycles found along the roads, and people started dubbing “Sharing economy” as “sharing trash”. Even the urban policies had changed. Not so long ago, “bicycle sharing” was recognized by the government as a form of innovation. Later on however, more local governments stressed the need for a stricter management, to limit the number of companies allowed to run such businesses, and required bicycles to be parked at designated spots.

Be it “street-stall economy” or “bicycle-sharing”, the outcome reflects a core issue in China’s continued economic development, namely its extensive management model, where many are forced to accept it whether they like it or not. In a paper discussing policies some time back, ANBOUND warned China that the shift from production to consumption would pose a great challenge to the country, that is the need to refine urban management for the government. And such shift can be difficult. For a long time, the local governments have grown accustomed to the “model” of jumping on the bandwagon while ignoring complex management problems such as cost and efficiency. In its 40 years of reform and opening-up, China had accomplished a rare economic miracle in world history by relying on this very model, and people continue to insist that the approach is suitable for China’s “national conditions.”

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The unrestrained development model is causing many problems today, both directly and indirectly, such as environmental problems, a chaotic market, and many Chinese companies’ failure to cope in foreign countries. Currently, the biggest problem for China is an endless cycle where the tide of globalization has subsided while labor costs have risen sharply. China is now experiencing what it has tried so hard to deny in the past, that is its economic growth has lost its driving force. Within five years, China’s GDP growth rate has dropped from 10 percent to 6 percent, even lower. The ugly truth is, it can no longer return to its original state, and it is stuck in an endless cycle.

Considering the circumstances on hand along with the employment pressure brought by the Covid-19 pandemic, when speaking of street-stall economy, what the Chinese central government is truly referring to is to provide local governments with an option rather than to demand for a one-size-fits-all solution. Yet, the local governments in China continue to plunge from one extreme to another, just like the infrastructure craze previously. Post-2008, the infrastructure wave was meant to rectify the problem of unfulfilled internal demands, yet it was taken as a panacea for the local economic development. Then, the market’s problems have now become the government’s problems too, yet the government does not know how solve it, and things are stuck in an endless loop.

Going back to the issue of street-stall economy, as the advocate for the Pedestrian-Oriented Development (POD) principle, Anbound was one of the earliest institutions to propose a similar concept. We mentioned that the retail industry should return to the city and let the city serve the people. Unfortunately, our proposed ideas for the POD principle were not realized, not even the part that involved providing a designated, orderly space for stalls to run their businesses, which resulted in the stall economy falling into a mess. The cause of the problem lies in urban management. The days of ambiguous management are over. Now, it is necessary for the Chinese government to focus on establishing the right system to develop the economy for long-term, effective results.

In just a few days, street-stall economy has experienced a huge transformation. The root cause lies in the extensive model adopted by urban and economic management in China. At the end of the day, the purpose of street-stall economy is to return prosperity to the cities and the streets, and strive to eliminate the endless cycle that plagues China’s economy.

Founder of Anbound Think Tank in 1993, Chan Kung is now Anbound Chief Researcher. Most of his academic research activities focus on economic information analysis, particularly in the area of public policy.

Yu (Tony) Pan serves as the associate research fellow and the research assistant of Chan Kung. He obtained his master’s degree at George Washington University’s Elliott School of International Affairs and his bachelor’s degree at the University of International Business and Economics in Beijing.