Starbucks And Steel: The Divergent Directions Of China's Economy : Parallels China is now home to two economies — one fading and industrial, and the other, a more thriving service sector. A steelworker, a Starbucks executive and a former banker explain.
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Starbucks And Steel: The Divergent Directions Of China's Economy

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Starbucks And Steel: The Divergent Directions Of China's Economy

Starbucks And Steel: The Divergent Directions Of China's Economy

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China today is a tale of two economies. The industrial sector that once fueled double-digit economic growth is struggling. Restaurants, coffee shops and other services are doing well. That's where the Chinese government sees the country's future. NPR's Frank Langfitt has more from Shanghai.

FRANK LANGFITT, BYLINE: I'm here at Bao Steel. It's one of China's biggest steel companies. It's about an hour's drive from downtown Shanghai where those skyscrapers are that you often see in movies. Right now I'm looking at something totally different. It's a workers' dorm. It's about five stories tall, and it's completely empty.

WANG DEWEN: (Foreign language spoken).

LANGFITT: Wang Dewen works here, smoothing the edges of steel plates. Over lunch, the 34-year-old explains what's been happening.

WANG: (Through interpreter) It was only a year after I arrived that the business started heading downhill, and it continued to go down and down.

LANGFITT: Over the last decade and a half, China built steel plant after steel plant to service the country's building boom. Now thousands of apartment blocks sit empty. Fewer buildings and infrastructure projects are being built, so that means less demand for steel. Prices plunged and then this year rebounded a bit. Still, Wang is very pessimistic.

WANG: (Through interpreter) Production steel is so cheap; raising pigs beats it. Now half a kilo of pork cost about $1.50. How much does half a kilo of steel cost - just a few cents.

LANGFITT: The company cut Wang's monthly salary from $780 to about $620. A couple of months ago he took a second job delivering food for KFC, making to 2.25 an hour. Wang was so beat after a recent 12-hour steel shift, he mixed up a food order. Now he's scared he could lose his job with KFC.

WANG: (Through interpreter) I'm screwed. I'm already down to my last chance. I only pray nothing will go wrong with my second job. This is what I think about every day. Don't lose this job.

LANGFITT: To bring capacity in line with demand, the government says it will close many plants and cut an estimated half a million steel jobs in the coming years.

Fifteen miles and a world away in downtown Shanghai, Larry Dong isn't trying to figure out how to lay people off. He's trying to figure out how to hire more of them. Dong is sitting at a Starbucks across from a fountain. He's VP of operations for Starbucks in Shanghai. He's trying to open 300 new stores here and in two neighboring provinces.

LARRY DONG: (Through interpreter) I think business is very good because every year, we see very high growth. China is now Starbucks' second-biggest market around the world. It will quickly surpass the U.S. in the future and become the largest market.

LANGFITT: Shanghai already has about 450 Starbucks. That's more than any other city in the world, he says. Rising middle- and upper-middle-class incomes are helping drive sales and expansion in China. For instance, when Dong began managing Shanghai's first Starbucks in 2000, he made about $280 a month. Now managers make more than four times that, he says.

DONG: (Through interpreter) The service industry in China, particularly the food and beverage business, benefited a lot from the dividends of China's economic growth. There's a lot of room for the service industry to grown in the future.

LANGFITT: Despite rosy outlooks like this, China's overall growth continues to slow. The reason is basic math. The service sector isn't expanding fast enough to offset the slide in the old industrial economy, and that the client is also affecting other sectors, such as banking.

Bryson, who's 31, quit his job as a loan officer at a government bank earlier this year. He was making two-thirds fewer loans than when he started in 2012. That's because state-owned industrial companies were doing so badly they could no longer qualify. We spoke over dinner while he was in town to train for a new job.

BRYSON: (Through interpreter) The entire bank's revenue is down, and the number of nonperforming loans is going up. Compared with other financial sectors, banking is no longer that attractive.

LANGFITT: Bryson didn't want to use his full name because talking about state banks is politically sensitive. He says China is at a crossroads.

BRYSON: (Through interpreter) China hasn't found a new economic growth engine. If I had to use a word to describe the current state, it would be confusion. We don't know where the country is headed.

LANGFITT: The government is banking that services and consumption will drive China's economy into the future. But as the experience of Bryson and Wang show, it's going to be a bumpy ride. Frank Langfitt, NPR News, Shanghai.

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