In Shanghai, prices fly high
By George Chen
The opinions expressed are the author’s own.
The other day one of my colleagues in Shanghai was happy to see her favorite fashion brand, Gap, finally arrived in China. That same day, November 11, China announced that inflation rose to a more than two-year high of 4.4 percent. It is no wonder then that, these days, Chinese people are complaining that almost everything is becoming more and more expensive including, of course, fashion.
Just a couple of years ago, my friends in Shanghai told me that when they go shopping, they might spend several hundred yuan on average buying quite a few items including jeans, a coat and some cosmetics. Now? 1,000 yuan, (about $150) is almost nothing — it’s easy to spend more than you ever expected, and faster.
A decent dinner in Shanghai’s popular nightlife area, Xintiandi, two movie tickets (nearly 100 yuan per person), T-shirts, perhaps some cosmetics, and taxi fares will eat up about 1,000 yuan.
Despite fast growing inflation, which some economists say is likely to rise to more than 5 percent early next year, Chinese people are still spending more than ever and the global financial crisis hasn’t dampened the spending spirit in China, whose economy is probably the least affected during the crisis. In fact, Beijing is encouraging its residents to do so in order to boost domestic consumption and reduce the country’s reliance on exports.
Deutsche Bank Chief Greater China economist Ma Jun sees a lot of opportunities as a result of inflation: “We see inflation as the most important investment theme in coming months,” he said in a November 11 research note to clients.
The government may step into the market to control price increases in some areas, such as energy and utilities, but for many other consumer products like fashions, appliances and food, there’s not much Beijing can do. Can Beijing force Pizza Hut restaurants not to raise prices if the cost of food material and human resources keep rising? Of course not.
Remember, Beijing is trying to brand itself as a market-oriented economy and not as a planned economy any more.
To some extent, Hong Kong, the former British colony that returned to Beijing’s hand in 1997, actually can benefit from China’s inflation story. At least Hong Kong’s landlords should be happy. After the official release of China’s latest macroeconomic data lastThursday, the Hong Kong media reported that rent for a small store in the city’s Tsim Sha Tsui shopping area was likely to double in 2011, from HK$850,000 ($109,166) to nearly HK$2 million ($258,038) per month as businessmen expect mainland tourists to further boost Hong Kong’s economic growth.
And, after the first store launch in Shanghai, the Gap said it plans to open three more stores in China. For Western companies that don’t want to miss the new wave of Chinese consumer spending, now seems to be a good time for them to plan around the idea of China’s inflation.
George Chen is a Reuters editor and columnist based in Hong Kong.
Photo: A customer travels down an escalator in the newly opened H&M shop in Shanghai April 12, 2007. REUTERS/Nir Elias