The COVID-19 pandemic has, without a doubt, meaningfully altered human behavior and from a strictly economic perspective, as it pretty much always happens, there have been both winners and losers in the business world. One category of winners is represented by platforms that facilitate working from home in one way or another such as the (in)famous Zoom, with their share prices making it clear that we are dealing with nothing short of a mega-trend.
When it comes to losers, unfortunately, there are more than a few, from “the usual suspects” in terms of businesses such as airlines and restaurants to even cities themselves, for example New York City. Why cities themselves? Primarily because mega-trends such as the one which constitutes the topic of this article wreaked havoc on the very principles that kept them sustainable.
If people work from home, why should they continue paying exorbitant rent prices instead of simply moving somewhere more affordable? What happens to landlords in this “paradigm shift” situation and what about the various contractors and third parties that are also included in the equation?
On the lifestyle front, with optional as well as government/state-enforced social distancing measures, what happens to habits such as eating out and enjoying a complex social life, which yet again represented a major selling point of urban areas?
These two simple examples make it clear that… well, things are actually anything but simple because as great as mega-trends such as working from home may sound, our system wasn’t exactly built for this significant of a paradigm shift. Look no further than commercial real estate to understand that entire industries would crumble if in our case working from home would become a permanent rather than temporary endeavor.
Why would it become permanent?
Because things are never straightforward in the world of economics and even once the pandemic ends, it would be naïve to assume all negative consequences will go away, primarily because “negative” is in the eye of the beholder and something that represents a toxic trend for industries such as commercial real estate or cities such as New York City might represent a blessing for other businesses and individuals.
For example, there are already studies coming out which illustrate that when working from home, not only does productivity not plummet when it comes to quite a few occupations, it actually goes up. Furthermore, when working from home, there is no need for the oftentimes-complex infrastructure of an office workplace: no rental costs for the employer, no maintenance costs and the list could go on and on.
To put it differently, quite a few employers are now have compelling evidence (both studies and empirical evidence when it comes to their own work from home experiments with their own employees) that this approach enables them to both save money and increase productivity… a combination one doesn’t exactly come across often In the business world.
At the end of the day, we are forced to use a term so popular in the tech landscape that it ended up in cliché territory: disruption.
Love it or hate it, the work from home mega-trend is poised to disrupt entire industries and, of course, China won’t exactly represent an exception. As such, it makes sense to think about this trend from the perspective of the Chinese economy and there are basically two very important perspectives that stand out:
- The situation as far as China’s more developed regions are concerned does not look all that gloomy, with hyper-technologization already a given when it comes to anything from smartphone use to digital payments (with China, believe it or not, being among the leaders rather than followers when it comes to this trend) and with many sectors of the economy more than able to adapt or even facilitate the transition to a more heavily work from home-oriented paradigm. As an example, we have dedicated an entire article to the gig economy from a Chinese perspective and yet again, it’s quite remarkable in how many surprising areas China leads
- When it comes to the less-developed regions of China, things tend to get a bit tricky in terms of anything from infrastructure (with China still having regions in which even the very basics by Western standards are lacking) to flexibility… let’s just say that for example remote education in a pandemic context is easier to implement in Shanghai than in one of China’s more rural regions. To put it differently, the work from home mega-trend represents yet another element which will make the significant gap between developed and under-developed regions more than clear
Of course, there are also issues that pertain to China as a whole, leaving the “developed vs. under-developed” gap aside, with commercial real estate and real estate in general representing a textbook example to that effect. In a “work from home” world, it will become even more obvious than it already is that a fair bit of malinvestment took place when it comes to pretty much everything real estate-related in China. As it was, China has proven to be over-zealous with respect to anything from creating new office spaces to building residential real estate and even in the absence of post-2020 trends, this isn’t exactly something that can be overlooked. The potentially reduced mobility and almost certainly reduced demand for office space would inevitably exacerbate and already systemic problem, so let’s just say the adaptability skills of the authorities will be put to the test.
All in all, it is fairly safe to conclude that in China as well as pretty much elsewhere, the previously mentioned “disruption” term is in the spotlight. It remains to be seen which countries will fare better in the long run if mega-trends such as the work from home one prove to be more than fleeting occurrences and as always, the ChinaFund.com team will keep readers and especially clients informed.