China's economy is undergoing a massive transformation, like a race car, seeking to overtake developed countries on a curve. Because the speed is too high (though curve speed is always slower than straightaway speed, 6% is still fast compared to the 1% of developed countries), the centrifugal force from the curve has thrown some passengers in the back out.
Tolstoy said that happy families are all alike, but every unhappy family is unhappy in its own way. So let's look at the subtle differences in this year's industry environment compared to previous years.
- The decline of the real estate industry is bottoming out.
Industries that rely on real estate as the source of demand, such as steel, coal, construction, and cement, have been declining for several years, but this year's situation is different.
In previous years, the pressure for these industries to worsen came from market forces; the saturation of demand meant the pie available to practitioners was shrinking, but policies were always doing "bottom-supporting" work, desperately trying to pull the industry up. So although practitioners suffered, they could still have a meal.
But this year, policies changed. The government realized that going against the market is like "defying heaven," and it will eventually be punished by market forces. Simply put, the government needs to invest more and more subsidy funds, which could potentially drag the entire country down. So this year, supply-side reform began, and the government officially declared surgery on loss-making state-owned enterprises.
This action is decisive for the fate of traditional industries: a considerable number of practitioners are forcibly kicked off, allowing the pie to concentrate in the hands of those who remain. The demand for real estate is eternal, and the pie of traditional industries is still huge. So when the number of competitors on the supply side decreases, their sense of well-being naturally increases.
So I say that the decline of the real estate industry is bottoming out. This stage is their most painful time, and this process may take another two to three years.
- Technological innovation in traditional industries is driving a reshuffle.
Many mature industries with stable demand often undergo a complete upheaval due to a sudden technological innovation, where the king is dethroned and the banner of the grassroots is planted on the city wall.
The mainstream technological revolution of our era is "Internet + smart hardware." If we zoom in on this year, it's O2O, webcasting, VR technology, etc. Take taxis as an example: this ancient industry suddenly became chaotic due to the rise of online ride-hailing. The original survival rules failed, and everyone who doesn't keep up with technological trends feels it's increasingly difficult to make a living.
The latest feature this year is "favorites," which further intensifies the differentiation of practitioners' fates: drivers who entered early and have good reputations will gain huge dividends, with a significantly higher success rate in grabbing orders, thereby squeezing out latecomers. This is the so-called windfall effect: when you are the first to enter, the entire territory is yours, everyone's eyes are on you, public opinion revolves around you, and a flick of your finger can move the earth; when you fall behind, you are just one of millions, having to fight with all your might against competitors, and you might even get lost and be trampled in the chase.
- Growth industries enter a demand inflection point.
Technology-driven growth industries typically have a three-to-five-year explosive cycle, during which they attract a continuous stream of practitioners. But one day, demand becomes saturated, and because entrants lag in information, they don't slow down, so the pie each person gets becomes smaller, and the pain intensifies.
A typical example is smartphones. Last year, demand had already basically peaked, but LeEco, 360 Qiku, and others still kept trying to get on board. Meizu also received funding from a backer, increasing investment, so the entire mobile phone industry was squeezed. Some were squeezed off the bus, like Lenovo and Coolpad; some were squeezed painfully, like Xiaomi; and some shifted their focus overseas, like Huawei and ZTE.
Another example is WeChat public accounts. The inflection point has already appeared this year: first, WeChat's registered users have peaked; second, the overall open rate is declining, but new public accounts are still increasing, so much so that Luo Pangzi lamented: "The open rate for Luogic Thinking's public account is still 500,000 to 600,000 per day, but my total user count is over 7 million. After the Chinese New Year this year, Tuobuhua and I were very nervous. As for live streaming, who cares, let's get in first."
- Emerging industries have been hit in the waist due to policy reasons.
Emerging industries are not all bright; the influence of policy is enormous. For example, cross-border e-commerce: with the sudden introduction of a new tax system, everyone was dumbfounded.
Especially those industries that enjoy policy support, once the policy suddenly withdraws, the blow to practitioners will be disastrous, such as the photovoltaic industry and animation industry bases in previous years. The currently booming new energy vehicle industry also enjoys policy dividends, but the withdrawal of policies is only a matter of time. This industry is so large that the state's annual subsidies in this field amount to tens of billions of yuan, making it very difficult to continue. According to current policies, subsidies will be reduced by 10% to 20% annually in the coming years. In this situation, companies like BYD that develop hybrid vehicles are better off, while those that only make pure electric vehicles and compete on low prices will have a hard time.
The biggest impact is from financial and monetary policies, such as cracking down on leverage and the sudden cancellation of the emerging industry board, which made many securities professionals feel a chill. Currency depreciation also reduces demand for import-oriented consumer industries, while export-oriented industries benefit. A news article I read today made me laugh out loud, titled "Why Can China's Textile and Garment Industry Do It?" from Xinhua News Agency, which said that textile exports increased by 5% in the first quarter of this year, reversing the trend of previous years. The reasons were summarized as: first, emphasis on innovation; second, the power of Internet+; third, the Belt and Road policy is awesome. Actually, it's clearly the credit of the currency depreciation at the beginning of the year. It's ridiculous to give credit to the two leaders. Why not say that the negative growth of mechanical and electrical product exports is a failure of the two policies?
- Basic services face the dilemma of population outflow.
The decline of an industry often leads to a massive outflow of population from a region, such as resource-producing areas in the northeast and northwest. Then, practitioners in related basic services will also suffer. Those who run small restaurants, drive taxis, or sell vegetables think that hard work will bring food and clothing, but they don't realize that the national destiny sweeps everyone along; there is no utopia.
Here's an interesting one: the beer industry. Logically, the demand for this industry is very stable, the kind Buffett favors most. But in 2015, it suddenly fell into negative growth across the industry. If you trace the cause, you'll find that it was the real estate downturn that led to the decline of the construction industry, causing a large number of migrant workers to leave the industry. They used to drink several bottles of beer a day when doing heavy work, but now it's one bottle every few days. And migrant workers are precisely the largest demand group for beer.
The end of the demographic dividend → real estate decline → construction industry decline → reduction in migrant workers → negative growth in the beer industry, and eventually it may even affect the packaging industry, advertising industry, and open-air food stalls.
In general, population, technology, policy, and the international environment are the four wheels of China's economic transformation. The wheel of the demographic dividend is slowing down, the wheel of technological progress is accelerating, the policy wheel is veering left and right, and the international wheel has hit a gravel road. Each factor could bounce us out of the car. Whether we can stay seated depends on whether we can grab a good seat.