I will no longer be working at Rock Bar as a server.

Business has been slow, and now that the peak season is over my services at Rock are no longer needed. This is a good thing, actually. I’m going home to the US in a couple of weeks to renew my visa, work on grad school applications, and enjoy time with family and friends after a long absence. Now I can use my last few weeks in Yunnan to travel and explore, hopefully lessening the shock before I extricate myself from what has proven to be one of the most fascinating, emotional, maturing, and unforgettable summers of my life.

But all that is for another time. What I really want to write about is something far more boring—the economy in Lijiang. Working at Rock has given me a glimpse into the inner workings of Lijiang’s tourism industry, and I’ve never seen anything like it.

I’ve written before about tourism in Lijiang, and the widespread commercialization and commodification of the Old Town. I already knew that everything in Old Town exists for the purpose of making money from visitors. What I hadn’t realized was how deeply this has penetrated every sector of the tourism industry. I’ve also written before about the importance of guanxi (connections) in Lijiang. Now I see that guanxi forms the very core of Lijiang’s economic structure. Without it, you’ll never survive.

Most businesses in the 21st century operate within the simple restrictions of supply and demand. In Lijiang, businesses must juggle three parameters: supply, demand, and commission. Tour companies receive commission from guesthouses. Guesthouses receive commission from bars and restaurants. Individual tour guides receive commission from everyone. This is simply how it’s done. No business succeeds in a bubble. Nobody survives outside the system.

Lets take a hypothetical bar as an example. This is a brand-new bar that just opened, and it’s in a difficult-to-find location. Thus it would make sense that the bar should keep its prices low—at least until it builds a reputation. After all, Lijiang is saturated with bars, and this new bar lacks a competitive edge. But the weird thing about Lijiang is that it is saturated with tourists as well. Even places far from the center, such as where this bar is located, are still swarming with people at all hours of the day. So in a city with practically unlimited supply (bars) and practically unlimited demand (customers), how do businesses compete? Why is Man Xiang Bar (one of the most successful in Lijiang) packed every night, while Rock Bar is so empty that they can no longer justify paying me?

The answer is that (almost) every bar in Lijiang pays 50% commission to guesthouses. If you sell a 40RMB bottle of beer to a stranger off the street, you make about 37RMB of profit (yes, the markup is that big). If you sell it to a tourist who came from a specific guesthouse, your profit is slashed in half.

In Lijiang, everyone stays in guesthouses. The average bar is filled 90% with guesthouse-affiliated drinkers, leaving very few tables available for independent travelers. This means that every bar in Lijiang is marketing themselves not towards average consumers (most of whom like to save money when they can), but to guesthouse staff. From the point of view of the guesthouse, a more expensive drink means more commission. The guesthouse would prefer to take their guests to a bar that serves 40RMB beer, rather than to a bar that serves much more reasonable 20RMB beer. This is why everything is expensive in Lijiang.

The problem with our hypothetical bar is that the location is inconvenient from the point of view of guesthouses. When a guide takes their guest around the Old Town, they take them through high-volume shopping areas where they will get commission, then to a nearby restaurant where they will get commission, and then to a bar where they will get commission. Our hypothetical bar is not located near any of the main shopping areas, so guesthouses usually don’t bother coming. Meanwhile, the prices are far too high to appeal to the rare individual traveler from the street. Add to this the fact that management has put far too little effort into advertising, marketing, and establishing connections with guesthouses (guanxi!), and it’s apparent why business is slow.

So who holds power in Lijiang? It isn’t the tourists. It isn’t the bar owners. It isn’t the local tour guides or individual guesthouse owners, although they certainly benefit from the system. There are really only a handful of truly powerful people in Lijiang. These guys not only own large tourism agencies, they also own numerous shops, restaurants, guesthouses, and bars. All of these businesses work together, and the commission money stays within a closed loop. Man Xiang Bar is packed every night because the owner sends drinkers from his own guesthouses, all located nearby.

The strangest thing to me about this whole system is that it leaves us—the consumers—completely stranded. The economy is neither demand-driven nor supply-driven. It’s like a private game played among the local businesses, and the consumers are trapped in the middle with no choice but to pay inordinately high prices. Until the massive groups of Chinese tourists catch on and stop coming to Lijiang—unlikely—the system will never change to meet the demands of consumers.