The Last Straw for the Real Economy: Mass Unemployment

This is not alarmism. Recently, Zong Qinghou, chairman of Wahaha, and Jack Ma, chairman of Alibaba's board, have been at odds. Zong, along with Cao Dewang and Dong Mingzhu, believe that the virtual economy has become excessive, disrupting the real economy and impacting the career choices of the younger generation. For instance, they think that being an internet celebrity or a micro-business owner might seem more lucrative, opportunistic, and free than working at a company, which could lead more young people to disdain jobs in real enterprises.

One Is the real economy's ailment really due to the virtual economy's development? Let's take an example: We all know that China's Ministry of Railways was very profitable. After the reform and opening up, due to large-scale population migration and mobility needs, the state invested heavily in public transportation, high-speed rail, subways, and light rail, significantly improving the efficiency of population movement and playing a crucial role in economic development.

Two This is what the virtual economy, or internet companies, do: use internet technology to improve business efficiency. Moreover, based on the current market share of BAT (Baidu, Alibaba, Tencent), this virtual "internet railway ministry" has been essentially fully built after the PC internet and mobile internet eras, with roads not only numerous but also overbuilt. Imagine how awkward it would be if 30 high-speed trains competed for passengers on the Beijing-Shanghai route simultaneously.

What drives population migration is motivation. Motivation could be the promising prospects in first-tier cities, a long-desired tourist attraction, or the desire to visit parents not seen for a year. The Spring Festival travel rush is coming, and tickets are hard to come by because everyone has the same motivation at the same time.

Three The intensity of this motivation indicates the health of the real economy. For Alibaba, if people don't buy goods, they won't browse Taobao or Tmall. But because they need to buy, Taobao and Tmall become the most convenient high-speed train, enabling the impressive 120.7 billion yuan sales on Singles' Day.

Four But the most critical factor is people. Without people, no matter how stimulating the migration motivation or how spacious the public transportation, it won't solve the problem of no one taking the high-speed rail, traveling, or shopping.

Returning to the current state of China's economy, the real economy provides the reasons for migration; whether these reasons are sufficient can be addressed through product improvement and marketing methods. The virtual economy, represented by internet and e-commerce channels, has become very convenient and mature, perhaps even overly so. But the ultimate issue is people, which boils down to money—the disposable income of the public. In 2016, this was not optimistic, and 2017 may be even less so.

The two main factors affecting disposable income are still the ever-rising housing prices and major medical expenses. Many families exhaust their wealth to buy a house for the next generation, then have to scrimp and save, counting every penny.

Moreover, the mainstream consumers driving China's economy today are the post-70s to post-90s generations. Unlike their parents, who either had no money or were reluctant to spend, they are not only willing to spend but also dare to overdraw and borrow. The recent "naked loan" incident on Jiedaibao was shocking; young consumers will go to any lengths to consume better products.

But even if they love spending, if they truly have no money, they can't conjure it up. The worrying future issue is that the disposable income in people's hands cannot support the current scale of the real economy.

Five A vicious cycle may begin in 2017.

"Layoffs" and "unemployment" will undoubtedly become keywords for 2017.

Zong Qinghou and Cao Dewang both said taxes and fees are too high, which is true, but the bigger increase is in marketing costs. Since 2015, with the introduction of the new Advertising Law and the disappearance of internet user dividends, BAT has passed on the huge costs to enterprises. For example, raising fee thresholds, introducing fake traffic, and increasing advertising review costs. You'll find that the original input-output ratio of 1:1.2 or 1:1.5 might drop to 1:0.8 or even lower. The more you sell, the more you lose. Many companies I know that have been in business for over a decade have lost all their accumulated profits and still can't fill the hole.

Manufacturing and internet companies differ in many ways, especially in high sunk costs. For instance, beverage factory equipment, due to sugar and sterilization issues, will be ruined if production stops for more than three months, so many factories have to continue production at a loss, eventually leading to bankruptcy and layoffs.

Recently, many excellent internet talents have asked me to introduce them to job opportunities at large companies. Their general view is: "In the current situation, small companies are too scary; you never know when they'll close."

If a wave of unemployment begins, it will inevitably kill more real enterprises, leading to a domino effect of collapses—a bad sign before an economic crisis.

Of course, Zong Qinghou's criticism of the virtual economy is not without reason. After all, China's virtual economy is controlled by BAT, and not many people are on board. BAT naturally has significant say in which real economy products passengers are prioritized to. The more precarious the real economy, the higher the train fares. From a business logic perspective, scarcity increases value; today's customer traffic is the last lifeline for enterprises, so it can't be sold cheaply.

I remember my grandmother once told me a story from before the reform and opening up: a hospital had only one oxygen tank, which could only be used by one patient. The doctor, in desperation, chose the younger patient, watching the other, a 50-something patient, die on the spot. The real economy's ailment today is probably similar.

Source: Entrepreneur Yu Lu (ID: cyyl688)

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