Can China’s “Stall Economy” Save

Its Stalled Economy?

Photo: GREG BAKER/AFP/Getty Images

PROGRAMS & PROJECTS

Chinese Business
Blog Post — June 24, 2020 and Economics

Trustee Chair in Chinese Business and Economics  >  Trustee China

Hand

By Shining Tan and Yilin Wang

Street stalls have long been considered something of a messy

embarrassment in China, a holdover from the relative poverty of
earlier eras – but that may be changing. In this year’s annual
legislative session held late last month, Premier Li Keqiang publicly
called for the revival of street stalls. This soon turned into a bona fide
strategy for promoting a “stall economy,” inspired in part by
Chengdu’s recent success in creating 100,000 jobs overnight through
properly regulated street vendors. Premier Li’s endorsement is
meant to help revitalize the economy in the wake of the coronavirus
pandemic, but it is also part of a larger strategic shift in economic
policy away from infrastructure-led growth and towards domestic
consumption.

The COVID-19 pandemic has inflicted great economic pain in China.

In the first quarter of 2020, China’s GDP contracted 6.8% compared
to Q1 of 2019. Overall official Chinese unemployment rose for the first
time in many years; in particular, employment among disadvantaged
groups and rural migrant workers plummeted, corresponding to a
27.4% and 30.6% YOY decrease respectively (see Figure 1). China
scrapped its annual economic growth target for the first time in
almost three decades, and instead has emphasized keeping
businesses afloat and avoiding a further loss of jobs. With these
changes China signaled that employment and domestic consumption
would be top priority this year. The promotion of the “stall economy”
emerged as part of this larger picture.

Figure 1: Employment Rate Change of the Vulnerable (year-on-

year)

Premier Li’s endorsement shows an effort to boost economic

opportunities for the least fortunate, marking a policy reversal from
the government’s previous efforts to crack down on street vendors.
In the past few years Chinese authorities have prioritized “building
civilized and tourist-friendly cities" (构建⽂明旅游城市) over the
practical needs of the so-called “low-end population" (低端⼈⼝), the
people who would compose the customer base and workforce of the
“street stall economy.” That population had been portrayed as a
source of urban blight, with local officials in Beijing, for example,
targeting migrant worker neighborhoods for mass eviction and forced
redevelopment in late 2017. The policy change came as a shock
precisely because of the long neglect of and discrimination against
these communities.
 

Workers clearing debris from buildings demolished by authorities in a

migrant worker neighborhood in Beijing.
Photo: Nicolas Asfouri/AFP via Getty Images

Economists and policy makers have long argued for increased

domestic consumption, but the need has become even more
important in the wake of the COVID-19 pandemic. While there is a
broad consensus on the advantages of tapping the domestic market,
practical difficulties abound, as consumption is constrained by pent-
up savings meant to cover healthcare and other life expenses due to
China’s weak social safety net. Hence, domestic consumption is
dominated by high-income Chinese. The “stall economy” concept is
an attempt to break that pattern and engage lower-income
households in the mass market.

So far, more than 27 cities have rushed to set up street stall zones,
and leading Internet companies Alibaba, Tencent, and JD have
announced large-scale subsidy programs to support street vendors.
Alipay recently reported a daily average of 100,000 new registrants
to set up a QR code for payment, a direct effect of the momentum of
the stall economy. By the end of May, over 12 million small shops and
street stalls announced an increase in their annual revenue. If the
success of Chengdu were broadly replicated, the stall economy could
potentially lead to over five million new jobs and increase income by
150 billion RMB, which is equivalent to 0.15% of GDP.

Chinese Internet companies, following the example of Pinduoduo,

have already profited handsomely from tapping the mass market of
lower-income households, termed the “Xiachen” market (下沉市场).
Literally meaning “sinking market,” the term refers to small Chinese
cities (third-tier and below) and rural areas, comprising a total of
about 930 million people, two-thirds of the Chinese population (see
Figure 2). Total consumption in these areas is estimated to reach $8.4
trillion in 2030.
 

Figure 2: The Huge Potential of the Xiachen Market

In the short-run, limited by their scale, street stalls serve more like a
band-aid over the economic shock of the coronavirus, modestly
helping reduce unemployment and expanding consumption,
complementing other steps taken to revive the Chinese economy.
Four top-tier cities – Beijing, Shanghai, Guangzhou, and Shenzhen –
have already expressed more concern for the lack of proper
municipal management, traffic and market regulation than
enthusiasm for the street stalls’ ability to drive the economy. In the
long-run, however, realizing the potential of the Chinese mass market
will require an approach that can reach lower-income consumers in a
familiar and inviting way. Embracing street vendors is a promising
approach.

Trustee Chair in Chinese Business and Economics > Trustee China

Hand 

Shining Tan is a research associate with the Trustee Chair in

Chinese Business and Economics at CSIS. Yilin Wang is a research
intern with the Trustee Chair in Chinese Business and Economics
at CSIS.

Related Trustee Chair Events:

The Growing Problems in Rural China: Trends, Solutions, and
Implications, September 14, 2017
Xi's Three Battles: China's Anti-Poverty Campaign, May 3, 2018

                                  

Tags

Asia , China , Economics , and Asian Economics

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