Doing business with China

In the November issue of The Atlantic, Yoni Appelbaum has written an interesting reflection that made me think about the current status of U.S. economy: “Around the globe, those who dislike American ideas about democracy now outnumber those who favor them. […] China whispers seductively to rulers of developing nations that they, too, can keep a tight grip on power while enjoying the spoils of economic growth.” I could not help but wonder whether the “tight grip on power” that China keeps while expands its economic power all over the world, will turn out to be an actual source of strength in the future.

Everybody knows that China is one of the leading holders of U.S.A. securities with 1,200.5 billions of dollars, as listed by the US Treasury. Currently, the U.S.A.  general government gross debt is 108.1 % of the GDP, while the China’s one is only 47.6 %. Additionally, according to Bloomberg, in the United States also the household debt is rapidly raising, and what scares most is that it is raising for necessities. Indeed, the US household debt ($12.7 trillion) has reached more than the size of China’s economy. Yet, the debt’s size and the fact that China holds a big part of it, would not be big problems if the US economy’s growth kept raising greatly: perhaps this is the most important element that we have to take in consideration when we refer to the future of USA’s economy versus the China’s one.

Even though the aggregate data released by the World Bank spread positivity last week, showing that in the 2016 the US’ GDP set to 18.57 trillion USD while the China’s GDP reached only 11.2 trillion USD, the IMF data collected till now offer a different insight into USA’s economic growth. Indeed, the annual change in GDP percentage in the US is only 2.2, compared to the 6.8 percent reached by China. Especially the IMF data referring to the exports of goods report that in the second quarter of 2017 China has reached the value of $566.82 billion, more than the $382.5 billion reached by the USA. What about the trade deficit? According to the United States Census Bureau, in August the United States ran a negative balance of 239,121.25 million dollars between exports and imports. Surely, this complex economic situation reveals that China is growing undoubtedly at a very fast pace. But can free market thrive in a country that exercises a “tight grip” on its economy? By looking at the current data, the answer seems to be affirmative: but what will happen in a long-term? We know that the most valuable sources that a country needs to improve its economy are people, capital and ideas, and how can China foster ideas and innovation through its rules? Last week The New York Times has published an interesting story that portrays very well what means being an entrepreneur in China.

We are used to talking about free market and trade, and the US along with other occidental economy – the German in the first place – have been doing business with China for years pretending that its rules and its way of looking at the market were the same we are used to. Yet, President Xi Jinping “has pushed for strengthening state-owned enterprises and has called on businesspeople to maintain loyalty to the party”, reshaping board seats and making restrictions on abroad investments.

On one hand USA is letting China enter in its free market and make deals with its companies, allowing this country to increase its exports in USA and so strengthen its economy growth. On the other hand, China is not playing by the rules. Indeed, the occidental view on free market is highly different from the China’s one. The problem it is not the one which Trump often refers to, that is China stealing jobs to US workers. In fact, the problem is subtler and concerns more the fact that, in order to make fair deals, both the parties involved should play by the same rules. Yet, as revealed by Bloomberg, in order to do businesses in China foreign entrepreneurs need joint ventures to help their companies to “navigate the complex Chinese business environment”; an environment made of strict rulers and a strong government control that still struggles to let its entrepreneurs make free choices.

Therefore, in this way China can control and reduce any form of competition, the main component of free market. Perhaps, more than focusing on China stealing jobs from US workers, the U.S. government should start thinking how much China is taking from its companies by not playing by the rules set by the WTO.

The trade relationship that U.S. and other occidental countries started with China –assuming that their economies would have benefited from it- might eventually endanger our market and especially our idea of free market.

 

 

 

 

 

Clouded Business Models – The Complex World Behind Electrical Vehicle Charging Stations

According to Google Maps, the Mobil gas station located at 8489 Beverly Blvd in West Hollywood is surrounded by charging stations for electrical vehicles. This isn’t surprising, because the number of EVs in California is increasing, and this particular area is ideally located at the intersection of two main arterial roads in Los Angeles: Beverly Blvd and La Cienega Blvd. This image raises an important question: are these charging stations competing with gas stations?

Bhulu Ahmed, the Mobil station’s owner, said that he hasn’t seen any change in his business over the past few years. “To be honest,” he added, “I do not see many EVs around here.” He explained that he has been working in the area for almost thirty years and, although the number of EV drivers has increased, he still serves the same number of customers as usual.

Perhaps the reason why Ahmed hasn’t experienced significant changes is related to the clouded business model behind charging stations. Indeed, it is still unknown whether EV charging stations will replicate the gas station’s business model, or whether the electricity offered for free by many plug-ins’ owners could prevent entrepreneurs from opening stations where drivers must pay to charge their vehicles. This current situation is a combination of two main factors.

On one hand, the state of California has set ambitious targets for EVs and made automakers commit to putting EVs on the market. Lisa Chiladakis, manager at Veloz, a Sacramento-based non-profit organization dedicated to increasing awareness about EVs, pointed out that the government’s goal is to have 1.5 million EV drivers by 2025. But people will not buy more EVs if they do not see an increasing number of charging stations, and the state will not provide more charging stations if the number of electrical vehicles does not increase. On the other hand, there are neighborhoods, such as Beverly Hills, that  offer power for free, as an incentive to attract shoppers. Accordingly, a new set of free-electricity providers has evolved; as stated by PlugShare’s chief executive Brian Kariger, some malls, supermarkets, and stores have chosen to offer free electricity because “some businesses install charging stations to attract customers.” This type of free-electricity business model makes it tough to see how EV charging stations could become the gas stations of the future.

Sorean Kim, a woman I interviewed at The Grove, said that she was taking advantage of the free charging station while shopping: “I found free places near my work and my home and actually my commute is not so far, so I do not have to charge my car very often.”

 

It’s Complicated

According to PlugShare, one of the most popular apps that allows users to find and review charging stations, none of the five charging stations close to Ahmed’s Mobil station has the same connector type or charges the same price. The closest one, at the Sofitel Hotel, has two J1772 EV plugs that cost $18 to use, once under six hours of parking is purchased. Another charging station in the area, at the Elan Hotel, has a Tesla plug type and the J1772. Unlike the Sofitel, the Elan does not require parking payment, just charging payment. Nearby, between Burton Way and La Cienega Blvd, there are also charging stations at Trader Joe’s; there, drivers do not pay for parking, but they have to pay a fee for the charge through Blink, a network of charging stations for EVs. From this, it is easy to see that all these places, within just a few miles, are assigning different values for the same product.

“The cost of the electricity is determined by the owners of the charging equipment. Some choose to charge. Some offer free charging as a customer incentive. Some fold the cost of the charge into parking or HOA fees,” stated Jennifer Allen, the supervisor of the zero-emission vehicle and infrastructure office within the California Energy Commission’s Fuels and Transportation Division. Moreover, the owners determine prices according to the type of charger level; a level 2 usually requires between $1 and $5 per session, while the DC fast-charging plug-ins require drivers to pay higher prices for the convenience of charging their cars in a very short time.

Kariger explained how payment methods work in EV charging stations: “Station owners and operators choose pricing. For example, if you own a parking lot you could choose to purchase a charger from SemaConnect, one of our partners, and once it was installed in your lot, you’d log into a website to set pricing as you see fit. Your station would then appear in PlugShare, and drivers would enter their credit card information into the app to pay and be on their way.”

 

Not Yet Defined

Might the free charging station model endanger the emergence of other models as well as the expansion of EVs? When I asked my interviewees if they see a potential long-term business model based on charging EVs with free electric power, each of them answered that it is unlikely.

Allen, of the California Energy Commission, stated that there are even gas stations selling electricity for electrical vehicles right now. Indeed, even though it seems that the free charging station model is still growing, “free stations aren’t always the best option.” Indeed, from its data analysis, PlugShare found that drivers are willing to pay for features like faster charging and for being able to plug in at convenient locations along the highway during a long-distance trip.

Yet business models are being developed, even though there are free charging stations available. They range from the home-model; the networking-model pursued by companies such as ChargePoint, Blink, SemaConnect, and eVgo; and the super-fast-charging-model. As Kariger pointed out, “one of the effects of having all of these less expensive, and in some cases consumer-owned, distributed energy resources is that it is opening up the energy business to more open models; for example, peer-to-peer energy trading. Electric vehicles themselves are mobile energy resources, and there are already pilot programs underway in which utilities and grid operators pay EV drivers for sending energy back into the grid. So not only will EV drivers be able to get reduced rates or free electricity, they will be able to sell energy to others as well.”

Overall, it seems that electrical vehicles are slowly reshaping the gas station business model that we are used to. We do not know yet which model will be the winning one, but surely many others are yet to come as the industry continues to evolve.

 

 

Clouded business models: The complex world behind EV charging stations

According to Google Maps, the Mobil gas station located at 8489 Beverly Blvd in West Hollywood is surrounded by charging stations for electrical vehicles. This isn’t surprising because the number of EVs in California is increasing, and this particular area is ideally located at the intersection of two main arterial roads in Los Angeles: Beverly Blvd and La Cienega Blvd. This image raises an important question: are these charging stations competing with gasoline stations?

Bhulu Ahmed, the Mobil station’s owner, said that he hasn’t seen any change in his business over the past few years. “To be honest,” he added, “I do not see many EVs around here.” He explained that he has been working in the area for almost thirty years and, although the number of EV drivers has increased, he still serves the same number of customers as usual.

He hasn’t experienced significant changes in the cost of gas, either; that day, the price of regular gas was $4.49 per gallon. Certainly, an EV driver might claim that that price is much more expensive than what he pays to recharge his car.

According to research conducted by Michigan University, based on average yearly mileage of 15,000 miles, an EV driver pays about $540 per year to charge his car, rather than the $1,400 per year paid by the driver of a gas-powered automobile. These significant savings do not factor in that many EV drivers can charge their vehicles for free.

Despite charging stations being so convenient, and sometimes even free, there is still an issue that could kill, or at least curb, the expansion of electric vehicles: the undefined business model of these charging stations. Currently, every EV charging station charges different prices, which vary depending on the type of connector, the equipment features, and the area where it is located.

It is unknown whether EV charging stations will replicate the gasoline station’s business model, or whether the electricity offered for free by many plug-ins’ owners could prevent entrepreneurs from opening stations where drivers must pay to charge their vehicles.

The business model of EV charging stations is still clouded; perhaps this is one of the reasons why, although surrounded by EV charging stations, Bhulu Ahmed has not experienced a decrease in his business yet.

 

It’s complicated

     According to PlugShare, one of the most popular apps that allows users to find and review charging stations, none of the five charging stations close to Ahmed’s Mobil station have the same connector type or charges the same price. The closest one, at the Sofitel Hotel, has two J1772 EV plugs that cost $18 to use, once under six hours of parking is purchased. Another charging station in the area, at the Elan Hotel, has a Tesla plug type and the J1772. Unlike the Sofitel, the Elan does not require parking payment but only charging payment. Nearby, there are also charging stations at Trader Joe’s; there, drivers do not pay for parking, but they have to pay a fee for the charge through Blink, a network of charging stations for EVs. Moreover, people reported on PlugShare that they had problems at this location, because drivers of gas-powered cars park in spots reserved for EVs, and because of most of the chargers were broken.

From this, it is easy to see how an EV driver might experience many kinds of payment models in just a few miles. To avoid these issues, some people purchase their own charger. Once the initial installation costs, which are decreasing thanks to government incentives, have been paid, drivers can then charge their cars whenever they want, solving both the “range-anxiety” and the payment issue.

The differences among EV charging stations are numerous: some charge by the kilowatt hour, others charge drivers per session, others require drivers to purchase a subscription, allowing them to charge their vehicles wherever they want at uniform prices, and lastly, there are free charging stations.

“The cost of the electricity is determined by the owners of the charging equipment. Some choose to charge. Some offer free charging as a customer incentive. Some fold the cost of the charge into parking or HOA fees,” stated Jennifer Allen, the supervisor of the zero-emission vehicle and infrastructure office within the California Energy Commission’s Fuels and Transportation Division. Moreover, the owners determine prices also according to the type of charger level; a level 2 usually requires between $1 and $5 per session, while the DC fast-charging plug-ins require drivers to pay higher prices for the convenience of charging their cars in a very short time.

PlugShare’s CEO, Brian Kariger, explained how payment methods work in EV charging stations: “Station owners and operators choose pricing. For example, if you own a parking lot you could choose to purchase a charger from SemaConnect, one of our partners, and once it was installed in your lot, you’d log into a website to set pricing as you see fit. Your station would then appear in PlugShare, and drivers would enter their credit card information into the app to pay and be on their way.”

Some malls, supermarkets, and stores have chosen to offer free electricity because, as Kariger said, “some businesses install charging stations to attract customers.” Sorean Kim, a woman I interviewed at The Grove, said that she was taking advantage of the free charging station while shopping: “I found free places near my work and my home and actually my commute is not so far, so I do not have to charge my car very often.”

 

Not yet defined

   Might the free charging station model endanger the emergence of other models as well as the expansion of EVs? When I asked if they see a potential long-term business model based on charging EVs with free electric power, each of my interviewees answered that actually it is very unlikely.

Jennifer Allen stated that there are even gas stations selling electricity for EV vehicles right now. Indeed, even though it seems that the free charging station model is still growing, “free stations aren’t always the best option.” Indeed, from its data analysis, PlugShare found that drivers are willing to pay for features like faster charging and for being able to plug in at convenient locations along the highway during a long-distance trip.

In the last year, there has been a huge increase in the number of electric cars registered in the United States, especially in California, where there are many new programs and government incentives to encourage drivers to convert to EVs. Lisa Chiladakis, manager at Veloz, a Sacramento-based non-profit organization dedicated to increasing awareness about EVs, told me that the California government’s goal is to have 1.5 million EV drivers by 2025.

Thanks to the increased number of EVs and charging stations, new business models are being developed, even though there are free charging stations available. They range from the home-model, the networking-model pursued by companies such as ChargePoint, Blink, SemaConnect, eVgo… and the super-fast-charging model. As Brian Kariger pointed out, “one of the effects of having all of these less expensive, and in some cases consumer-owned, distributed energy resources is that it is opening up the energy business to more open models; for example, peer-to-peer energy trading. Electric vehicles themselves are mobile energy resources, and there are already pilot programs underway in which utilities and grid operators pay EV drivers for sending energy back into the grid. So not only will EV drivers be able to get reduced rates or free electricity, they will be able to sell energy to others as well.”

Overall, it seems that electrical vehicles are slowly reshaping the gas station business model that we are used to; we do not know yet which model will be the winning one, but surely many others are yet to come as the industry continues to evolve.

 

The U.S. household income increased, but there is still much to do.

The data released by the Census Bureau in the income, poverty, and health insurance report on September 12 seem to portray a healthier U.S. economy.

In fact, the annual report shows that the median household income rose by 3.2% from $57,200 in 2015 to $59,039 in 2016, and that the percentage of people living in poverty decreased in 2016 by 0.8% from the rate registered in 2015. Additionally, the data reveal a drop in the percentage of people without health insurance coverage: the value registered in 2016 was 8.8%, 0.3% less than the value registered in 2015 (Reuters).

Overall the quality of life in the United States seems to be improving and this means that the growth that the country has seen since the recession in things like the stock market, is at least to a certain extent also starting to show in households (Marketplace). Yet, skepticism lingers over the data shown in the report.

Considering other measures could help to better understand why the U.S. still has much to do to repair its economy.

The report by the Census Bureau reveals that the income inequality rate is not decreasing: there are still huge divisions in incomes because of people’s gender, race and age. Moreover, inequality between Americans is growing (The New York Times).

In addition to income inequality, there is another measure that we should take into account: supplementary poverty. As pointed out by Forbes, unlike the poverty rate, supplementary poverty considers many of the government programs designed to assist low income families and individuals that are not included in the official poverty measure. Therefore, it shows that there are many families above the official poverty level that are actually receiving government aids.

This is one of the aspects that shows there are still many open questions about how economists should measure the poverty level and what values to take into account. Despite a rise in median household income, there are a lot of people who still feel «economic frustration», because there are different factors that influence people’s wages and economic opportunities, like for example the place where they live (Marketplace).

Beside these measures, also the number of health insurance coverages raises skepticism among the experts.

Even though the percentage of householders having insurance coverage increased, a breakdown of these data could reveal a different story.

If we look at people with income at or below the poverty level, we can see that 16.3% of them lack insurance coverage: «these are people who can least afford to take on medical debt» (Forbes). This percentage is quite remarkable when compared with the 4.6% of householders above the poverty level living without insurance coverage.

Despite these issues, it seems that the U.S. economy is improving overall. This element matters a lot, since President Donald Trump has announced that he wants to reform the current tax system and cut government spending. Democrats, considering the economic improvements shown in the Census Bureau’s report, «now have more ammunition to argue that the changes Mr. Trump seeks would mess with the success » (The New York Times).

The Federal Reserve is also paying close attention to the data released by the Census Bureau and to the current status of the U.S. economy. In fact, Janet L. Yellen, the Federal Reserve chairwoman, is expected to end the Fed’s lenient monetary policy in a meeting scheduled this week; the changes that will be following could affect the current improving U.S. economy.

Yet, whatever effect the new monetary policy will have on the economy, the increase in household income and the drop in the poverty rate is a reflection of the higher number of people back in the work force and of the 2.2 million of jobs added over the past year. The growth in the number of working people is «a vivid illustration of the old maxim that a job is the best antipoverty program » (The New York Times).

 

 

One Rate Does Not Make a Summer, But May Indicate a Mild Fall

It is almost the end of August and this summer seems to have brought positive news to both the U.S. and European markets. The latter especially may now breathe a sigh of relief since, as the Wall Street Journal reported on Aug. 24, 2017, even the weakest European economies such as the Greek, the Portuguese, and the Spanish have been showing growth over the last year. Along with them, the Italian economy seems to be enjoying a substantial reversal in its usual downward trend, as shown by the steady decrease of the unemployment rate released by Istat, the Italian National Institute of Statistics, on June 7.

These developments are being reported just as the Federal Reserve’s annual conference is taking place in Jackson Hole, Wyoming, where Mario Draghi, president of the European Central Bank, and Janet L. Yellen, the Federal Reserve chairwoman, will speak about the future of the European and U.S. monetary policies for the year to come. Their speeches will focus on whether the current lenient regulations will be removed.

The decision on this very hot topic—appropriate for the end of summer—might affect the improvements shown by the delicate economies of the Eurozone, such as Italy’s, which has been reinvigorated by the positive unemployment and employment figures released in June 2017.

Why do these rates matter? Even though they are mere numbers, they stand for people; people who have been struggling to find jobs. As reported by the Italian business newspaper Il Sole24ore,  the unemployment rate decreased 0.2 percent from May to June of 2017, and has settled at the level of fall 2012—when Italy reached its lowest unemployment rate. This news has created confidence among markets, entrepreneurs, and investors.

The recovery of Italy’s economy was also reported by Quartz and Bloomberg this month; these two media outlets showed that the Italian GDP increased by 0.4 percent in the last quarter, thanks to added value of manufacturing and services, as Lorenzo Totaro wrote on Aug. 16, 2017, on Bloomberg; this GDP increase reflects the larger number of employed people.

These indicators have also revealed another interesting aspect of the story: the employment rate of the female population has increased by 0.7 percent from June 2016 to June 2017, reaching the threshold of 48.8 percent. Women are more likely to be unemployed in Italy; this upturn signals a great change in the economy of the country.

In this scenario of mild recovery and optimism, the decision of whether to pull back the current stimulating monetary policy is very important for a country such as Italy, whose policies and efforts seem to be heading in the right direction. Certainly, as recently stated by Carlo Calenda, minister for economic development, and Ignazio Visco, governor of the Bank of Italy, the improvements observed through the lenses of economic indicators such as the GDP or the unemployment and employment rates do not mean that Italy has completely recovered from its financial crisis (Corriere della Sera, Aug. 24, 2017); the country still needs reforms to encourage business innovation, and support the work life of employees.

“For the first time in ten years all the major economies of the planet are growing,” (Marketplace, Aug. 24, 2017) and what might happen to Italy after the Federal Reserve’s annual conference concerns European countries as well as the U.S. We have to wait to see if this new wave of economic growth will be fostered and advanced by the new regulations that will be implemented by Mr. Draghi and Ms. Yellen at Jackson Hole. All we know now is that the enthusiasm about Italy’s steady growth is based on solid facts, and it is part of a remarkable turnover regarding the entire Eurozone.

Unemployment Rate Forecast; source: tradingeconomics.com/italy/unemployed-persons/forecast