Inflation-hit Chinese go abroad to shop

By George Chen
July 11, 2011

By George Chen
The opinions expressed are the author’s own.

It’s been a month since my last column on Reuters.com as I have been on the road for a while.

When I travel in New York and London, my identity is more like that of a consumer with a dash of journalistic observation. People usually say Hong Kong is a shopping paradise but in my view, Hong Kong is no longer my favorite city for shopping. For U.S. fashion brands such as Cole Haan or Banana Republic, prices are much cheaper in New York. It’s the same for London if you’re a big fan of Burberry or Paul Smith.

The American people I know complain far less about the financial crisis than two or three years ago. Instead, some of them say they actually enjoy some of the benefits. Rents are cheaper. Food is cheaper. Transport companies are unable to raise ticket prices.

Prices for some nice homes in the historic Embassy Row, Washington D.C., look attractive to me. How much can you buy if you have $1 million? You can probably buy a nice house in downtown Washington or a tiny flat in Asia’s financial centre Hong Kong. $1 million is no longer a dream for many Chinese people thanks to the yuan’s appreciation. Let’s face it — America is cheaper and the Chinese are getting richer.

But the Chinese have their own problems; they don’t feel that rich at home.

The inflation reading for June hit a three-year high of 6.4 percent year on year, and Goldman Sachs said we may see further highs in July or even August. During his recent trip to Britain, Chinese Premier Wen Jiabao, often known as “Grandpa Wen” in China for his kind and down-to-the-earth image, claimed the inflation problem had been solved. He may need to think twice after seeing the angry public reaction in China on the rapid rise in consumer prices, especially food.

You may also want to hear what China’s central banker governor Zhou Xiaochuan said about inflation: he asked the media and public not to “overreact” to the June figure and apparently tried to prove he was doing a good job.

The central bank had many things to deal with, not only inflation, for example international payments, he said at a recent meeting. Mr. Zhou, I respect you as an intelligent and influential central banker, however, to ordinary Chinese such as my parents in Shanghai, your comments on inflation simply make them feel almost hopeless about the outlook for their purchasing power.

Perhaps the Chinese Communist Party, which is celebrating its 90th anniversary, wants to send this message — it’s not that bad to be Chinese. Go abroad and buy whatever you want and you will be proud of holding yuan and being Chinese.

Perhaps I’m too simple and naïve?

George Chen is a Reuters editor and columnist based in Hong Kong.

File photo: Shoppers walk up Fifth Avenue in front of the Cartier jewellery building in New York, December 7, 2008. REUTERS/Chip East

14 comments

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[...] The opinions expressed are the author’s own. It’s been a month since my last column on Reuters.com as I have been on the road for a while. When I travel in New York and London, my identity is more like that of a consumer with a dash of journalistic observation. People usually say Hong Kong is a … – Bing News [...]

[...] Go here to see the original: Inflation-hit Chinese go abroad to shop | George Chen [...]

Mr. Chen: Your article strains credulity. It suggests that consumer goods (and even many luxury items are made in China or elsewhere in the lower waged developing countries) can suddenly, through some magic trick of marketing, cost less to buy in this country that may have the intellectual or patent rights to the merchandise but is actually importing the finished product. You suggest that luxury stores on Fifth Ave., that have some of the highest rents in the city can somehow be cheaper to shop in that the likely place of origin.

How can a country where the maximum income allowable to qualify for certain forms of federal or state assistance is $21,000 for a rural area approximately 300 miles from NYC and where rents even in relatively remote areas seem to be typically above $600/month, possibly offer bargains to people who may be wealthy, even by western standards but still live in a part of the world where the average yearly wage was about $3000/yr. not even two years ago. Even with inflation of the Yuan and devaluation of the dollar – that is impossible to accept.

Your article suggests that somehow China has achieved parity with the US (or Europe for that matter?) and yet hasn’t lost its ability to manufacture foreign consumer goods competitively.

Can’t wait to hear other comments on your piece.

Posted by paintcan | Report as abusive

Thanks for your comments “Paintcan”. It can be a very interesting yes-and-no debate. In short, yes, Chinese people are rich but not every single Chinese. The middle-class in China is growing, fast, very fast, and they are keen to go abroad to shop as the price, for example, an LV bag, is much more expensive in China (if you come to China to verify the truth:) and talking of the “origin”? Is the origin for those products made in China really considered as “China” by those luxury products makers? But I hear what you say, again, yes or no, given the yuan appreciation, the buying power of Chinese individuals when they go abroad certainly rises but whether it is good news to China as a country in whole, it’s debatable and it’s a complex of thoughts… Thanks again!

Posted by georgechen | Report as abusive

Just returned last week from 11 months in China.”Georgechen” is right. My chinese “pengyous” [friends] are paying way more for everything than we do here in southern california. We’d price compare and everything from gasoline to clothing was the same price as it is in our home state. We were shocked! Especially because our friends make about 1/6th the income we do, and they too are college educated professionals. Many of them even work for multinational companies because they can speak English. [They said they'd make even lower if it was a Chinese company]. Consumables and property purchases are cheaper in the U.S. [only rent is less, but they are shamed if they don't own a property, and 40% of their wage must go directly to a savings account that is only allowed to be used to buy property!] The Chinese government is pulling something over on them if you ask me.

Posted by socalcouple | Report as abusive

Let’s hear some real numbers to compare. I’m dazed that a country with an average income of $20,000 can find anything here – property or luxury goods, at bargain prices?

My grocery store bill is about $175.00/month for one person. I go to a very inexpensive outlet run by a guy in the wholesale food business and I buy most of my monthly items there and I don’t buy fancy. A gallon of whole milk is typically $2.89. A dozen eggs is about $1.40. I bought 1.5 quarts of Bryers Ice cream for $6.99 yesterday. I bought a frappe at a upper end candy store in town for $$4.91 including sales tax ($.41).

From the recent ads, 1 bedroom apartments in the nearest urban area – under 50,000 pop., rent for $700.00 to $790.00/ month. A random used car ad – in front of me now – says a 1997 Camaro is for sale $3,800 or best offer. I don’t have an ad now but a new car is upwards of $30,000.

The last time I checked at the Town Hall – a few weeks ago – my 850 sq. ft. house on a full basement, was assessed at about $180,000. I think the real value is below $160,000 because few houses are moving according to the town clerk and what I can see from the road.

A typical Sears ad I just fished out of the paper basket has polo style shirts for $9.99. Some light women’s tops and shorts as a set go from between $10 and $15.00. I’m surprised because they are competitive with the Goodwill and Salvation Army Shop and that’s used clothing. Men’s suits reg. price $240.00 marked 50% off, sell for $124.99.

In appliances – a Kenmore 25 cu ft refrigerator sells at $1199.00 down from $2379.99. That sale has ended.

I think I paid $3.66 per gal. of gas for the car yesterday. I put $10.00 in.

Let’s hear what things cost in China?

Posted by paintcan | Report as abusive

George, The saying goes: Sometimes one can’t see the forest for the trees”.

The Chinese consumers, whether affluent or living far below the income mean can use a single equation to estimate the cost of their productive lives against the cost of the continuance into another generation via another generation.

A typical couple will invest 20b to 25 year raising a child for the state and can expect to get one half grandchild for their labor. Four people are required to work to insure that they produce one child who must find another couple with one child. So that both can produce one whole grandchild.

In the old china – the couple would produce as many children as possible to build a more comfortable retirement. Today’s China has by fiat limited that number to 4 grandparents to one child for a factor of 4 to 1.

The cost of living in China is staggering. China has been very nearly forced to become a state that practices self genocide.

Posted by paintcan | Report as abusive

I made a mistake in the second paragraph.

“Two” people are required to work to insure that they produce one child who must find another couple with one child. So that both can produce one whole grandchild.

Posted by paintcan | Report as abusive

I recall that roughly 300 million Chinese citizens enjoy a standard of living comparable to the middle class in the EU or the USA today. These people may be able to pursue their dreams as aspirational buyers overseas as described in this post.

The remaining 900 million, however, must stay at home and wrestle with the price increases. The future will show whether stamocap will be able to accomplish the necessary redistribution of wealth.

Read more about stamocap here:
http://brainmindinst.blogspot.com/2008/1 2/stamocap.html

Posted by PeterMelzer | Report as abusive

The article is very misleading because the author is talking about Hong Kong and referring to it as “China”. Hong Kong is indeed experiencing a housing bubble at the moment as the average person there cannot afford to buy house. Many experts expect the bubble to bust soon (like the U.S. market) which will lead to even worse inflation.

Part of the problem here is cultural. Many of the posts here (made by someone) clearly have never been to Hong Kong and don’t know much about it. The currency in Hong Kong (HK) is fixed (sort of) to the value of the U.S. dollar. So as the dollar loses value, so does the HK dollar.

When I was in HK last Nov 2010, it was roughly $1US to $7.65HKD. Today it’s about $1US to about $7.7HKD which is a little better because the dollar value has risen a little bit in the past few months.

Technically HK is part of China but it’s really a sovereign state with their own political system, currency and everything. The HK dollar is not the same as the Chinese Yuan. They don’t look alike, and they aren’t worth the same, they are totally different. The poeple in HK aren’t even the same people in majority of China. People in HK speak Guangdongwa (Cantonese) and English. People in the rest of the country like Beijing or Shanghai speak Mandarin, the official language.

Posted by mahadragon | Report as abusive

[...] Inflation-hit Chinese go abroad to shop (Reuters) The inflation reading for June hit a three-year high of 6.4 percent year on year, and Goldman Sachs said we may see further highs in July or even August. During his recent trip to Britain, Chinese Premier Wen Jiabao, … claimed the inflation problem had been solved. He may need to think twice after seeing the angry public reaction in China on the rapid rise in consumer prices, especially food. … China’s central banker governor Zhou Xiaochuan said about inflation: he asked the media and public not to “overreact” to the June figure and apparently tried to prove he was doing a good job. The central bank had many things to deal with, not only inflation, for example international payments, he said at a recent meeting. … to ordinary Chinese such as my parents in Shanghai, your comments on inflation simply make them feel almost hopeless about the outlook for their purchasing power. Perhaps the Chinese Communist Party, which is celebrating its 90th anniversary, wants to send this message — it’s not that bad to be Chinese. Go abroad and buy whatever you want and you will be proud of holding yuan and being Chinese. 15 April China acts after inflation rises (FT) China has imposed strict price controls on basic consumer items and is expected to allow faster appreciation of its currency in the coming months after annual inflation in the country reached its highest level in nearly three years in March. The economy grew a faster-than-expected 9.7 per cent from a year earlier in the first quarter, only fractionally slower than 9.8 per cent in the fourth quarter of 2010, suggesting that six months of government efforts to cool growth have been largely ineffective. Since October, Beijing has raised benchmark interest rates four times and increased the ratio of deposits that banks must hold in reserve six times, to 20 per cent for China’s largest lenders. 10 April China Goes American, Registers First Trade Deficit Since ‘04 (Forbes) A growing middle class and a stronger local currency has more Chinese businesses buying abroad. Higher priced commodities — especially soy from the Americas and iron ore from Brazil — didn’t help the trade figures either. 26 February [...]

That’s how countries usually get to revolutions. Strong growth and upper classes enjoying it, at the same time, becoming more and more self-confident. Lower classes get nothing from growth except the inflation. And become more and more angry. And then upper classes start to finance revolutions and lower classes are more than ready to be the material of the revolution… Let’s see how it works out in China but it could be pretty nasty…

Posted by tk2 | Report as abusive

I can tell you that I am an expat working in a Japanese company in Beijing, and it is increasingly difficult for me to live on my income here. I honestly have no idea what the Chinese, who make 3000 RMB a month or less, are doing. If inflation continues in China, they will have a serious crisis. And if China has a crisis, the rest of the world will have one too as the Chinese flood out of their country for greener fields.

Posted by hellomyman | Report as abusive

The USA needs laws restricting foreign ownership of land, much as most countries do. The American people have different interests than our real estate brokers do.

Posted by txgadfly | Report as abusive

Good article George Chen, and don’t pay any attention to people like paintcan, who have probably never been to China. I’ve lived here nearly 10 years now, and I can easily see the difference, and the progress that has occurred. Iphone’s and Ipad’s are a great example…. Thought to be cheap here, but on my last trip to California turned out not to be so… Cheaper to buy them in silly valley, than in Shanghai…. Go figure..
Also people like tk2 (also probably never been to China) has western media propaganda embedded in their skulls, and can’t see the forest for the trees….

Posted by edgyinchina | Report as abusive

China’s so big there’s really no way to generalize, many views can all be right. One thing though when talking about distribution of wealth and revolutions – while I’m not saying there won’t be stresses and perhaps another uprising someday, keep the size in mind: Albania is MUCH poorer than Germany yet we don’t think twice about them going at each other. China is perhaps 4x larger in population than all of Europe, population and land area so its totally unrealistic to think development and wealth would be even.

Posted by mgunn | Report as abusive

edgyinchina,

I suppose you think you are the only one who lives in China too?

Just because people have a different experience doesn’t mean they have never been to China. If you think everyone can afford Iphones and Ipads, you obviously haven’t learned enough about China.

Posted by hellomyman | Report as abusive

[...] at least 35 people has raised fresh questions about China’s rapid railway spending drive 11 July Inflation-hit Chinese go abroad to shop (Reuters) The inflation reading for June hit a three-year high of 6.4 percent year on year, and [...]