China’s Service Industry and Summary of the Effects of China-U.S. Trade War (4/4)
A Summary of the China-U.S. Trade War and the Impact to China’s Manufacturing, Technology and Service Industry (4/4)
China started off with nearly no service industry. I personally lived in the Beijing Friendship Hotel which was one of the earliest State Owned hotels. No employee had the incentive to serve customers because they were paid the same amount no matter if they were serving people well or not serving people at all. The concept of a service industry didn’t really exist. However, as the 1990’s and 2000’s came around, the government allowed for more private enterprises which led to individual private restaurants, hotels, stores etc. Service became much more of a priority as there were more competition between similar services.
Foreign companies were quick in attempting to enter this massive market. Unlike the technological industry, companies in the service industry actually had a distinct advantage. Chinese consumers naturally believed that western brands had more consistent quality, and a better reputation, which immediately set foreign brands over local Chinese brands.
Yet foreign companies were also wary of intellectual property theft in China. Starbucks entered China in 1999 with their first café. Within four years they had registered all its major trademarks in China. As Starbucks was gaining popularity, four separate copy-cat coffee shops emerged in China. After a two year long legal lawsuit, the Chinese court ruled with Starbucks to close down all of the copy-cats. This served as a landmark ruling giving confidence to foreign service companies to enter China without fear.
As a result, in the past two decades, with their elevated foreign brand status, and keen business expertise as compared to traditional Chinese service companies, foreign restaurants, clothing and consumer goods have been extremely successful in China.
For years, foreign restaurants and stores were the staple of every shopping mall and every street. Only recently has the balance been leaning more towards local Chinese Chains. The most representative example of this style of new Chinese owned restaurant chains is called Haidilao, which serves traditional hotpot. Haidilao is known for their impeccable service. For example, since these restaurants are so popular, they usually have a 30 minute to 1 hour wait time, in which the restaurants provides entertainment, nail polishing, massage chairs, board games, snack and other services for free. This service-based approach and mindset is a 180-degree change from that of when China just opened up.
As the Chinese Service industry is becoming more sophisticated, we may expect that trade war tensions to lead to potential nationalistic behavior. In 2012, after Tokyo nationalized three disputed islands in the East China Sea, China entered a period of anti-Japan riot in which Japanese cars and manufactured goods were vandalized and destroyed. Similarly, American brands may be boycotted, leading to the service industry losing market share until the trade conflict is appeased. However, unless a huge conflagration occurs, the service industry will still be relatively stable and unaffected by the trade war tensions.
Additionally In the past five years, large scale private corporations are beginning to provide more and more specified assistances based on the customer’s needs and pain points along the customer journey. Under this new trend, service industries in China has grown leaps and bounds with an annual growth rate of 31.4% in 2017. To continue to grow the service industry, China will have to continue consolidating its services and engage second tier and third tier cities. Foreign companies will still be able to capitalize on this growth.
In summary, the accusations of intellectual property theft witnessed in the manufacturing industry and the unfavorable trade policies favoring local competitors in the tech industry were just one of few reasons which led to the brewing conflict between China and the US. Yet what the trade war would mean is that Chinese manufacturers will have to begin differentiating their products based on quality to remain competitive in the global market. Meanwhile, Tech giants like Huawei will have to become more self-reliant and cut the need of importing goods if they want to continue to innovate and grow. The service industry on the other hand is the neutral zone for foreign enterprises, allowing foreign institutions access to the Chinese market, one which will unlikely see many restrictions resulting from the Trade War.
At the time I am writing this paper, June 29th, China and US leaders have just met at the G20 summit and again agreed to renegotiate the trade agreement. At some point, this agreement will be signed. However the tensions between China and the US will likely not subside in the next 10–15 years as both countries will compete for a bigger share of the pie. However, as a citizen who has lived in both countries, I understand that the similarities between the two countries way outweigh the difference. The best step forward is for both countries is to work together and construct a win-win situation, a larger pie. Otherwise, this will only be a catalyst for an economic war that will hurt both countries.
