In Shanghai, prices fly high

November 18, 2010


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


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Thanks USA…, we’d better buy things earlier, haha!

Posted by Billy | Report as abusive

First of all, I am not econmist but really to express my feeling toward this article..It is nice trial to analyse the changes in Shanghai but I would like to stress about some points..The writer rely upon his friend’s opinion and this is unfair for scintific reasons , The sample here does not represent the sociaty in Shanghai and to be precise , do not rely upon something you have heard. In addition ,The writer did not mention the salaries in Shanghai so we can not judge the situition presisely..I did not get his idea ,Is it just to critcise the whole sitution or just to make China looks like a pardise……At last , I am so sorry for my bad language and i am trying to improve it …

Posted by Moad | Report as abusive

Thanks Moad for your comments. I intend to agree with you on some points. Just FYI, salaries level in Shanghai are not as high as in those big cities in the West. A fresh graduate can probably earn 5,000 yuan (753 USD( at a Big Four accounting firm or a foreign bank like HSBC and it is considered a pretty decent job for a young person. For more experienced professional workers, things can be very different but they are not the majority of consumers in the city as they prefer travelling abroad to shop, to large extent. Hope things can improve, at least to win the battle of inflation! cheers, George (the author)

Posted by George Chen | Report as abusive

China prints money much more faster than US… life is more difficult for poor people

Posted by Ling | Report as abusive

Guess it is right that the author could have adjusted the rise in prices with the average level of salary, but I think he brought across the very important point that the pace of price increase in Shanghai is simply astounding. I was in Shanghai just a week ago and got charged USD2 for per page printing. True, it could have been the place I was at and hence, may not be reflective of the general price level. But I guess it says it all when the price of meat and vegetables increase by the day at the market.

Posted by Pin | Report as abusive

I am not quite agree with Ling about idea of China prints money much more faster than US,on the contrary,US states prints money more quickly than any other country in the world.

Posted by jacque | Report as abusive

China is not just Shanghai – the UK is not just London and The US is not just New York. The wealth gap is massive in China and the majority of the population are living on a few US$ a day. It will be a long time before many in china even know what a GAP store is never mind about go to one.

Posted by Vince Stanzione | Report as abusive

The real reason why China is experiencing inflation is due to the falling USD and to USD-China trade or what I called “Currency Wars for Dummies”: or%20Dummies.pdf

Posted by David | Report as abusive

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Posted by Frontrunning: November 19 « Finance Blog | Report as abusive

To David,

The inflation in China have both home grown and import factors so not all about exchange rates.

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Shanghai mourns fire victims…

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China stocks mixed in Asia following Friday's plunge…

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Chinese regions fight back against surge of Mandarin – Reuters…

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[…] 0/11/18/in-shanghai-prices-fly-high/ “GDP – Gross Domestic Product is the amount of goods and services produced in a year, in a country. It is the market value of all final goods and services made within the borders of a country in a year. – Wikipedia Definition” […]

Posted by Econ Wars – U.S. vs. China – 004 | TerrestrianDream | Report as abusive

[…] In Shanghai, prices fly high (Reuters) […]

Posted by Frontrunning: November 19 | Jackpot Investor | Report as abusive

To George,
The political economic climate between China and the US, spearheaded by the divergence between currency exchanges, will create a Chinese inflation premium. However, living in Beverly Hills two blocks from Rodeo Drive and seeing all the for lease signs, any correction will be at least 18 months out. The question is can Shanghai continue the explosive growth beyond 18 months without an inflation dampener. The main question is how important and how large will be an inflation factor be. But as George Chen is so astute about, the high end items cigars, wines, spirits will be the last to correct.
Student of Laura Tyson, US President Clinton’s Chief Economic Advisor and Robert Reich, Clinton’s Chief Labor Relations Economic Advisor

Posted by Holties | Report as abusive