Within less than 9 months, Yu’ebao, the poster boy of e-finance products, has attracted more accounts than those in the China’s stock market. This mostly attributes to Alibaba’s (parent company of Yu’ebao) huge user base. At the same time, Yu’ebao’s convenience, high profitability and low entry barrier are also driving reasons to this success. Without doubt, the fast rise of Yu’ebao and every other e-finance product are surely disrupting the game of traditional financial markets.
This disruption has struck a few nerves. Naysayers state that e-finance, instead of revolutionize the finance industry, it is killing the industry. Or, in a more specific way, it is destroying the stock market by drawing cash away.
Due to the government’s interference, these traditional financial industries have long been unable to meet people’s expectation on profitability. The stock market was prosperous because there was no other option to make money. Now with the debut of e-finance, people realized there’s a much more profitable while safer way to invest. It’s only natural to see the disruption.
So it all comes down to the rate of return. If the stock market can perform better and produce a rate of risk/return at least neck to neck to the e-finance products, this “disruption” should stop. In fact, the 6% annual return of Yu’ebao isn’t that high for a financial product. It was only popular because of the low risk. This so called “e-finance revolution” reveals problems of China’s stock market: the return and risk are unpredictable.
Like it was mentioned above, this unpredictability was because of the government’s interference. Unlike it is in most developed stock markets where the primary function is to allow companies to raise capital for profitable investment opportunities, China’s stock markets, was created to recapitalize and restructure large state-owned enterprises that otherwise would have gone under. These state-owned companies, by nature, rely on state subsidies and governmental deals. That is to say, the growth of these companies depends on policy makers’ decision rather than the market. This is unpredictable to normal people. Since the stock market is driven by these state-owned enterprises, it inherits the unpredictability as well.
So who’s actually responsible for the disruption on China’s stock market? The stock market itself, and, of course, the government. After seeing two decades of unstable performance, people have realized the truth of the stock market. There have always been problems on the stock market system. E-finance only magnifies them to the public. Now with PBOC finally set its mind to make changes, let’s hope e-finance will survive and serve as a catalyst, too.
Is the shutdown of Mt. Gox, one of the major Bitcoin Exchanges, signifying the doom day of Bitcoin?
No. Although $400 million worth of bitcoins, which accounts for 6% of all existing bitcoins, have lost as a result of the heist on the exchange, bitcoin is far from being a failed attempt. As an up and coming cyber currency, bitcoin is going through the roughness during its infancy of being a “cyber product” and being a “currency” at the same time.
Like every other cyber product, flaws and bugs are inevitable. Therefore Mt. Gox’s incident is not completely unforeseeable. Sooner or later, another bug will be exposed, some people will be hurt, some agency will lose its reputation, and some superhero will come to save the world. The release-bug-fix-release loop of software development has defined the imperfectness nature of bitcoin from day 0.
Bitcoin as a currency, although rebellious in nature and virtual in existence, is still exposed to the risk of being stolen. In fact, the $200 million heist is not the biggest heist on currencies. Beside no firearms involved and nearly untraceable, I don’t see the Mt. Gox meltdown any different from other bank robberies.
So, does Bitcoin have no problem at all?
Absolutely not. When it comes to security and trustworthiness, Bitcoin is much inferior to the dollar bills. In terms of security, in good days, bitcoin is safe because it’s untraceable. When things go south, bitcoin is also dangerous because it’s untraceable. The double-edged sword that is information privacy makes bitcoin a good choice for trading without the big brother’s watch, and a worst option ever for people who want to secure their money.
In terms of trustworthiness, since bitcoin is decentralized by design, there’s no institution backing it up. Columnist Megan McArdle explained this very clear in her article:
“… as yet, no currency exchange (for bitcoin) like the ones we use for regular currency -- backed by large institutions that can be sued if things go wrong. … for folks in the regular old economy, that’s a problem. It’s hard to get enthusiastic about saving in a system where hundreds of thousands of dollars can disappear overnight, leaving you with no recourse.”
Now, what’s bitcoin’s future?
I’ll argue that bitcoin will continue to exist, but not as a full-fledged currency. On one hand, a currency must be durable, divisible, transportable and uncounterfeitable. Although Bitcoin satisfies the latter three, it fails to be durable in terms of retaining the same value over time that is the most important characteristic of money. On the other hand, even if someday bitcoin managed to stabilize its price-to-dollar and became a reliable currency, it’ll receive enormous pressure from the government. The better it does at evading governments’ surveillance, the harder governments try to shut it down. At the end of the day, the government has control over the financial tools and it’s an irremovable part in the ecosystem.
Bitcoin can’t achieve its goal of “decentralization” without fundamentally alter the economy system and take the government out of the equations. Meanwhile, in order to be strong enough to fight with the government, it has to be accepted by the vast majority, and that’s only achievable after the removal of the government. Simply put, Bitcoin can’t beat the government without first beating the government. This paradox has decided the doomed failure for Bitcoin in front of the governments.
So what really is zipper project? Like a zipper, which is frequently zipped and unzipped, zipper project is a kind of frequently repeated construction or maintenance project. Most of the zipper projects are labor intensive, cheap and time-consuming. If you’ve been to China, you should’ve seen workers planting rode-side trees or fixing roads, those are most frequently used zipper projects. The reason I’m so sure that you have seen them is because they are there all the time – not long after the projects are finished, the same or another group of workers will be sent back to tear everything down and start over. It’s kind of like “the Myth of Sisyphus” in real life, only that it’s not a punishment but a way to provide temporary job opportunities.
“Zipper” project, is yet another unique social phenomenon in China. It exists to solve a social problem, but it’s not a real solution, because zipper projects can’t eliminate the migrant worker problem from the root. If anything, it’s a compromise.
It’s a compromise between keeping the rapid growth of China’s economy and maintaining the stableness of China’s society. You have to admit the difficulty of running a country is not linear to its population. Feeding the biggest population in the world while keeping up with the world’s economy growth is not an easy task. Many think the idea of zipper projects sounds ridiculous, as it makes no sense for a city to waste resources on prying and patching the same part of the road repeatedly. The reality is, however, if it weren’t for the zipper projects, there would be hardly enough temporary jobs to buffer the huge number of incoming migrant workers. When these people coming into the city without jobs, trouble comes, too. Between putting the the society at risk and wasting resource, it’s wiser to choose the latter.
This reminds me of the famous “Trolley Problem”: you see a trolley running towards five people out of control and there’s lever that can divert the trolley to a sidetrack where there lies one person, what would you do? I guess for the Chinese decision makers who shoulder the responsibility of 1.35 billion people, utility beats morality.
Like the name suggests, Sharing Economy is “a socio-economic system built around the sharing of human and physical assets”(Wikipedia). The system sees the excess capacity in goods and services as a problem and solves it with collaborative consumption. Simply put, Sharing Economy wants to lower your cost of living by letting you borrow a bike from you neighbor and make your trip in Porto Rico much more enjoyable while cheaper by renting you a house in San Juan.
Jeremy Rifkin’ comments on Airbnb’s success in his column in the LATimes explains a lot about the Sharing Economy:
“Airbnb owes its meteoric rise to a new phenomenon — near zero marginal cost — which is disrupting entire sectors of the global economy and giving rise to a new economic system riding alongside the conventional market. Marginal cost is the cost of producing an additional unit of a good or service once a business has its fixed costs in place, and for businesses like Airbnb, that cost is extremely low.”
The extremely low marginal cost is one of the greatest benefits of Sharing Economics. By efficiently redistributing resources among the crowd, this economy system significantly decreases the pressure of purchasing for individuals. For example, if you want to buy a vacuum machine, in the conventional market, you have to pay $200. That’s $200 per person. But with the sharing model, although the nominal price of the vacuum machine is the same, since you can share the purchase with your neighbor, the real cost becomes $200/n. The more you share, the less you actually pay.
The concept is simple, but the impact can be huge.
Ever since the recession, most households’ real income has been decreasing whereas the CPI has been increasing. This forces average households to spend greater portion of their income on food and other basic living expenses. People are scared of big purchases because of the financial pressure.
Shared purchases, however, removes this pressure. The real expense on shareable goods is divided as explained in the vacuum example and therefore become much lower. With the cheaper shareable goods, people will be able to buy more. Therefore, in the short run, sharing economy can create extra purchase power to stimulate the market.
In the long run, with the growth of population, the scarcity of resources is going be increasingly significant. U.N projects that, by the year of 2050, there will be 9.3 billion people in the world. A world without resource-sharing would be unimaginable by then.
The only concern about sharing economy is regulatory uncertainty. Sharing Economy’s model suggests that everybody can be service provider or property lender. This will surely introduce problems when it comes to security, licensing and other indirectly related issues such as benefit negotiating. But since Airbnb and Uber have been proven to be successful in their respective industry, it is expected that these obstacles on Sharing Economy will be removed in the near future.
This is my sub-blog that shows I didn't major in econ for nothing.
Special thanks to Dr. Miles Kimball, who introduced me to the blogosphere and made me think like an economist. I just hope my poor writing style and astonishingly lack of knowledge won't embarrass you.
An Economierdo's Sub-Mumble @econsub-blog - Tumblr Blog | Tumgag
