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Small windows (literally) onto the intense (as in, crazy intense) competition in some parts of the Chinese economy: the cluster of independent coffee shops that have sprung up near our office in Shanghai.
And some thoughts about the economics of it at the bottom of this thread.
And some thoughts about the economics of it at the bottom of this thread.
There was a time, a few years ago, when I needed to trek *one full block* to the nearest Starbucks (of which there are many, way too many, in Shanghai) to get a coffee. Now, within a two-min walk, there are eight independent cafes, ranging from good to great. Here's a rough map.
The shop fronts of the first four are in the first tweet in this thread. Here are the next four.
And this is not counting all the other independent coffee shops down the side streets. Plus the big brands--Starbucks, Costa, Tim Horton's (seriously), Peet's--that are a stone's throw away, based in more expensive real estate.
We'll have to check back in a year to see how many have survived, but I'd say it's a good bet that the local market is beyond saturation point.
At risk of reading too much into coffee shops, I think this tells us something about overcapacity in the Chinese economy.
At risk of reading too much into coffee shops, I think this tells us something about overcapacity in the Chinese economy.
Many often look at overcapacity purely as a top-down phenomenon: the product of industrial policy. State policies lure investors into, say, making solar panels or electric vehicles, while restrictions limit their entry into other sectors such as banking. That's part of it.
But it is also a bottom-up phenomenon: entrepreneurs home in on what look to be profitable opportunities, then move fast and in big numbers. There are relatively few barriers, beyond the need for capital, to get started when still small.
And this is what makes it so complicated for regulators and economists.
To the extent that overcapacity is policy-driven with global spillovers (say, steel), it makes sense to use anti-dumping duties etc to push back.
To the extent that overcapacity is policy-driven with global spillovers (say, steel), it makes sense to use anti-dumping duties etc to push back.
But when overcapacity results from bottom-up competition, blocking that poses costs. Consumers reap benefits, as I can attest from this narrow example. Quality of coffee has increased dramatically in past few years; prices have not (as little as $2 for a good flat white). ENDS
