PRC Economy - New Reflections : Dec 15 2011

[subhamoy.das]

To all those who think CHINESE per capita wealth is close to US or EUROPEAN level here is a latest report from World Bank, now I would rather believe them than arm economists here who are just yelling "again" "again"....

Since initiating market reforms in 1978, China has shifted from a centrally planned to a market based economy and experienced rapid economic and social development. GDP growth averaging about 10 percent a year has lifted more than 600 million people out of poverty. All Millennium Development Goals have been reached or are within reach.

With a population of 1.3 billion, China recently became the second largest economy and is increasingly playing an important and influential role in the global economy.

Yet China remains a developing country and its market reforms are incomplete. In 2011, China’s gross national income per capita of $4,940 ranked 114th in the world; and over 170 million people still live below the $1.25-a-day international poverty line. With the second largest number of poor in the world after India, poverty reduction remains a fundamental challenge.

[subhamoy.das]

CHINA is ranked at 100, US at 2nd, when it comes to vehicle per capita.
See here http://en.wikipedia.org/wiki/List_of_co ... per_capita

See how GNI and Vehicle per capita rakings are talling for CHINA ( 80 vehicles per 1000 ) and US(800 vehicles per 1000).
If the real CHINESE GDP would have been much more - as u are so hell bent on making us believe - then these two countries would not have been so farther on these scales - no? So the point comes back - absolute number of cars sold is either fake or a small percentage of the population is buying all those as they are hoarding the wealth of the country due to autocratic rule of CPC and no democracy.

The GNI and VPC figures tally with the pictures that have emerged in the internet of the CHINESE citices and sub-urbs. The kind of wealth seen tallies with the GNI and VPC figures.

And more word of advice - donot believe the MNC as they are god send . Please remember that they are a greedy bunch and out there to make money and number of them have been sent to jail for faking books - Enron, Lehman Brothers, Fanny etc etc....

[chola]

chola anna, you are repeating yourself.

Replying to and correcting statements of fundamental economics from another poster is not repeating.

I'll give you an example. Your posts have caused me to do some research in real life ; someone I know works for the worlds leading auto wire harness manufacturer...5 billion in global sales per annum, and I asked him about his "China" strategy. He said we have plants where our customers (the big auto companies) ask us for supplies. They ONLY focus on what their customers, i.e the volkswagens and porsches and gms of the world tell them....they ll put up plants in antarctica if it enables them to sell parts. They , thus do not have any special china thrust, mentally.

another person I know, works for a large indian fmcg . Says that again, they are FOCUSSING on their core market , India...they do not look at China at all. And they have a 50 billion USD market capitalizn despite being almost totally India focussed...their CEO is top 10 Indian cEo acc to harvard business review...so they're doing something right.

If they are focusing on their core market and it does not include China then that is the right direction for them. I see no reason for them to make any changes.

[heech]

To all those who think CHINESE per capita wealth is close to US or EUROPEAN level here is a latest report from World Bank, now I would rather believe them than arm economists here who are just yelling "again" "again"....

Maybe you can be more specific and give names. Who are these people, on this thread or really anywhere, who think Chinese per capita wealth "is close" to the developed West?

[chola]

I am not sure why u are not able to see that fact that when it comes to house hold consumption like cars and phones it is GDP/head or house hold that matters and NOT absolute GDP because the COUNTRY is not the consumer but the house holds in the country are. India is worlds THIRD LARGEST GDP by PPP as per world bank and IMF and if your lahori logic would have its way then INDIA would have been the 3rd larget car market in the world after US and CHINA and INDIA would have been the third largest apple phone market after US and CHINA. Sadly it is not because its GDP per house hold is pretty low and only a small percentage of those households has US level per capita income.

Completely clueless. Sales measures economic activity and is tightly correlated with GDP, especially consumer products. That is why the wealthiest nations on earth ALWAYS consume the most.

Per capita GDP is simply reported GDP divided by population. You are completely lost using things like households as not being consumers. What does that even mean? Consumers are households and households are consumers.

I wish you had not insist on bringing India into this conversation. But unfortunately, India is famous among MNCs for having an over-reported GDP and over-reported middle class. Its sales never match what the supposed size of the middle class should be. In fact, they don't even come close.

Sales figures are not wrong because companies either have revenue from the sales or they don't. If they don't their operations in said countries go bankrupt. GDPs can be reported by governments without penalty except for the currency and bond markets which punish them with falling exchanges.

The chini currency raises every year and is still considered undervalued. This is a classic sign that the GDP is larger than its reported value.

[chola]

CHINA is ranked at 100, US at 2nd, when it comes to vehicle per capita.
See here http://en.wikipedia.org/wiki/List_of_co ... per_capita

See how GNI and Vehicle per capita rakings are talling for CHINA ( 80 vehicles per 1000 ) and US(800 vehicles per 1000).
If the real CHINESE GDP would have been much more - as u are so hell bent on making us believe - then these two countries would not have been so farther on these scales - no? So the point comes back - absolute number of cars sold is either fake or a small percentage of the population is buying all those as they are hoarding the wealth of the country due to autocratic rule of CPC and no democracy.

Good Lord, man. Your problem is not with basic economics but with basic math.

If the PRC with four times the population of the US had the same per capita car ownership as the US, its GDP would be four times larger! No one is saying that. What the sales figures are saying is China has an US size-economy for the MNCs.

Also ownership includes cars sold in years past and has nothing to do with the yearly GDP which are more exposed by sales figures.

And more word of advice - donot believe the MNC as they are god send . Please remember that they are a greedy bunch and out there to make money and number of them have been sent to jail for faking books - Enron, Lehman Brothers, Fanny etc etc....

MNCs are a greedy bunch and that is why most economists believe their sales figures over government spewed GDP figures. It's real money for them. You need real cash for factories and products. GDP figures can be made up far more easily with far less penalty.

Enron, Lehman Brothers and Fanny Mae are finance firms and accounting creations. They do not sell products that require raw material and factories like the GE, GM, VW and Caterpillars of the world.

The first group are movers of liquid capital, they invest with financial instruments (FII in foreign countries.) The second group invest with factories (FDI.)

Think about it. Not you, Subhamdoy saar. But for those who actually understand economics, think about it.

[subhamoy.das]

I am not sure why u are not able to see that fact that when it comes to house hold consumption like cars and phones it is GDP/head or house hold that matters and NOT absolute GDP because the COUNTRY is not the consumer but the house holds in the country are. India is worlds THIRD LARGEST GDP by PPP as per world bank and IMF and if your lahori logic would have its way then INDIA would have been the 3rd larget car market in the world after US and CHINA and INDIA would have been the third largest apple phone market after US and CHINA. Sadly it is not because its GDP per house hold is pretty low and only a small percentage of those households has US level per capita income.

Completely clueless. Sales measures economic activity and is tightly correlated with GDP, especially consumer products. That is why the wealthiest nations on earth ALWAYS consume the most.

Per capita GDP is simply reported GDP divided by population. You are completely lost using things like households as not being consumers. What does that even mean? Consumers are households and households are consumers.

I wish you had not insist on bringing India into this conversation. But unfortunately, India is famous among MNCs for having an over-reported GDP and over-reported middle class. Its sales never matches what the supposed size of the middle class should be. In fact, they don't even come close.

Sales figures are not wrong because companies either have revenue from the sales or they don't. If they don't their operations in said countries go bankrupt. GDPs can be reported by governments without penalty except for the currency and bond markets which punish them with falling exchanges.

The chini currency raises every year and is still considered undervalued. This is a classic sign that the GDP is larger than its reported value.

One more data point for us and see how CHINA is a much less consumer nation as per US. http://en.wikipedia.org/wiki/List_of_co ... onsumption

You keep on insisting the GDP is the indicator of wealth and not GDP per capita. So by your logic since US and CHINA has the same level of car sales they have the same level of GDP and hence the same level of wealth. Population has no effect and that wealth is not distributed in population!

Tomorrow u will say that population density makes no sense as u are simply dividing the size of the country by its total population and my that logic US and CHINA, since they have close to same land size, are equally populated country! I think u can do better than that my friend!

I think then there should be a great rush to go to CHINA and live the CHINESE dream - no? So what does your source tell you regarding how bands of economic migrants from all over the world are making a beeline for CHINA? Do they have a equivalent of H1B program which gets lapped up within days of opening ? I am now seriously doubting your nationality.

[subhamoy.das]

CHINA is ranked at 100, US at 2nd, when it comes to vehicle per capita.
See here http://en.wikipedia.org/wiki/List_of_co ... per_capita

See how GNI and Vehicle per capita rakings are talling for CHINA ( 80 vehicles per 1000 ) and US(800 vehicles per 1000).
If the real CHINESE GDP would have been much more - as u are so hell bent on making us believe - then these two countries would not have been so farther on these scales - no? So the point comes back - absolute number of cars sold is either fake or a small percentage of the population is buying all those as they are hoarding the wealth of the country due to autocratic rule of CPC and no democracy.

Good Lord, man. Your problem is not with basic economics but with basic math.

If the PRC with four times the population of the US had the same per capita car ownership as the US, its GDP would be four times larger! No one is saying that. What the sales figures are saying is China has an US size-economy for the MNCs.

Also ownership includes cars sold in years past and has nothing to do with the yearly GDP which are more exposed by sales figures.

And more word of advice - donot believe the MNC as they are god send . Please remember that they are a greedy bunch and out there to make money and number of them have been sent to jail for faking books - Enron, Lehman Brothers, Fanny etc etc....

MNCs are a greedy bunch and that is why most economists believe their sales figures over government spewed GDP figures. It's real money for them. You need real cash for factories and products. GDP figures can be made up far more easily with far less penalty.

Enron, Lehman Brothers and Fanny Mae are finance firms and accounting creations. They do not sell products that require raw material and factories like the GE, GM, VW and Caterpillars of the world.

The first group are movers of liquid capital, they invest with financial instruments (FII in foreign countries.) The second group invest with factories (FDI.)

Think about it. Not you, Subhamdoy saar. But for those who actually understand economics, think about it.

Now u are saying that CHINESE economy is not four times larger then how much large is it? See per capita figures is now giving you some second thoughts. You are contradicting yourself. In one post u say sales is strongly correlated to GDP and now u say GDP is fake and there is no correlation between the two.

No one is saying that China cannot have a US sized car market by absolute terms but with 5 times the US consumers, Only 20% of its consumers can afford to buy cars and that is NOT a wealthy nation.

ENRON is not a financial company - it was a energy producer. I need to dig more and will find out consumer durable MNCs.

I think u are still reading my posts at a very high level or u are down to earth logically challenged. I will give u the doubt by considering the first.

[chola]

One more data point for us and see how CHINA is a much less consumer nation as per US. http://en.wikipedia.org/wiki/List_of_co ... onsumption

Yes, as your wiki says China consumes a little more electricity than the US. Which makes sense as their overall GDP is probably about the same when tabulating sales figures.

You keep on insisting the GDP is the indicator of wealth and not GDP per capita. So by your logic since US and CHINA has the same level of car sales they have the same level of GDP and hence the same level of wealth. Population has no effect and that wealth is not distributed in population!

No, I have made absolutely no assumption on wealth. I said from MNC sales figures, the chini economy is about the size of the US's and thus it is far larger than what the official chini GDP which is currently half of the US's.

You are making arguments against statements that no one made whatsoever. I think you are creating strawmen to distract from your complete illiteracy on economics.

I think then there should be a great rush to go to CHINA and live the CHINESE dream - no? So what does your source tell you regarding how bands of economic migrants from all over the world are making a beeline for CHINA?

No one will rush to a piss-poor third world country under communist dictatorship except for the world's largest multi-nationals.

I am now seriously doubting your nationality.

Thank goodness you are watching out for us. By the way, those that know me from a decade ago on BR might know that I am ethnically Tamil but nationally American. I also have a Chinese-American wife who was a swimmer and volleyball player in college and who still looks gorgeous in a bikini. Need to know more?

[chola]

Now u are saying that CHINESE economy is not four times larger then how much large is it?

Please quote the exact post in this thread where I said the chini economy is four times that of the US, sir.

I do not want to be impolite and call you an incompetent who needs to lie about what someone says just to "win" an argument but I do want to know where I made such a completely insane statement.

Enron was originally a holding company with some energy assets until Kenneth Lay took over. Then it became a stock market darling and made its wealth through stock inflation. It hadn't much to sell. It is not a traditional MNC. In fact, it could not be considered a MNC at all since it had minor operations outside North America.

[subhamoy.das]

u said "No, I have made absolutely no assumption on wealth.".
u said "Completely clueless. Sales measures economic activity and is tightly correlated with GDP, especially consumer products. That is why the wealthiest nations on earth ALWAYS consume the most."
u said "Sales figures are not wrong because companies either have revenue from the sales or they don't. If they don't their operations in said countries go bankrupt. GDPs can be reported by governments without penalty except for the currency and bond markets which punish them with falling exchanges".

So CHOLA ji, make up your mind first which figure u want to go by - sales, GDP or GDP per capita and which one is the wealth indicator

U said "I said from MNC sales figures, the chini economy is about the size of the US's and thus it is far larger than what the official chini GDP which is currently half of the US's."

Now I am sure, with all your economic literacy - u did not check out the PPP values for 2012 level - there two are close, 15T for US and 11T for CHINA. So where is the UNDER REPORTING of CHINESE economy?

[member_20292]

I wish you had not insist on bringing India into this conversation. But unfortunately, India is famous among MNCs for having an over-reported GDP and over-reported middle class. Its sales never match what the supposed size of the middle class should be. In fact, they don't even come close.

.

I hope you realize that some of this is also because indians are slightly less brand conscious than chinese are, .....the chinese cant get enough of gora brand worship. Indians, much less so.

[member_20292]

Thank goodness you are watching out for us. By the way, those that know me from a decade ago on BR might know that I am ethnically Tamil but nationally American. I also have a Chinese-American wife who was a swimmer and volleyball player in college and who still looks gorgeous in a bikini. Need to know more?

Indo-chinese babies!

[sanjaykumar]

http://www.bbc.co.uk/news/world-asia-china-18327865

http://shanghai.usembassy-china.org.cn/airmonitor.html

[Rishirishi]

I have been to china several times, first time in 2002

some observations.

The infrastructure in large cities like, Shenzen, Guanzhou, Xiamen, Shangai, etc is way better then any Indian city. There is no comparison. Neither is there any comparison when it comes to manufacturing. China is way ahead. Face it, it is the truth.

But I still think India will supass China some time in 10-15 years time. It all depends on weather Indian public manages to get rid of corruption. Here is the reason.

1 chinease gov. is over spending, to keep the growth. Party know very well that it will be impossible to stay in power, if the economy does not grow.

2 Soner or later, the west will not be able to purchase and finance the currency deficit. Exports will be hurt.

3 Exports are already being hurt, as wages and costs in China has gone up. labour that used to cost 300 Us dollar per month only 3-4 years ago, now cost up to 6-700. This is due to the increase in cost of food and living. China is actually turning quite costly now. A lunch at a half decent restaurant will cost approx 50 rmb (Rs6-700). I am not talking of anything fancy, just ordinary place in a second tier city like Xiamen. In india the same meal will cost Rs 3-400.

4
Govrnment controls all the large services, and charges there after. The mobile industry in India, is way better, as it costs less to call in India. Bus, train, food, etc all cost much.

5
The Industry is moving out and in to the provinces. But even there the costs are high. Thanks to the one child policy, the labour pool is getting smaller.

6
Local government are financing the opperations, with sale of land. But there is a limit to that.


The chinease model can't last for ever.

[sanjaykumar]

But I still think India will supass China some time in 10-15 years time.


Half of children in India are physically stunted; even with adaptive mechanisms and potential brain sparing there is the toll of malnutrition, vitamin deficiencies, Iodine and Iron deficiencies (both affect IQ), parasitical diseases, lack of school infrastructure, abysmal levels of pedagogy and of course gender bias.

Who are we trying to kid?

[Waylan]

I have been to china several times, first time in 2002

some observations.

The infrastructure in large cities like, Shenzen, Guanzhou, Xiamen, Shangai, etc is way better then any Indian city. There is no comparison. Neither is there any comparison when it comes to manufacturing. China is way ahead. Face it, it is the truth.

But I still think India will supass China some time in 10-15 years time. It all depends on weather Indian public manages to get rid of corruption. Here is the reason.

1 chinease gov. is over spending, to keep the growth. Party know very well that it will be impossible to stay in power, if the economy does not grow.

2 Soner or later, the west will not be able to purchase and finance the currency deficit. Exports will be hurt.

3 Exports are already being hurt, as wages and costs in China has gone up. labour that used to cost 300 Us dollar per month only 3-4 years ago, now cost up to 6-700. This is due to the increase in cost of food and living. China is actually turning quite costly now. A lunch at a half decent restaurant will cost approx 50 rmb (Rs6-700). I am not talking of anything fancy, just ordinary place in a second tier city like Xiamen. In india the same meal will cost Rs 3-400.

4
Govrnment controls all the large services, and charges there after. The mobile industry in India, is way better, as it costs less to call in India. Bus, train, food, etc all cost much.

5
The Industry is moving out and in to the provinces. But even there the costs are high. Thanks to the one child policy, the labour pool is getting smaller.

6
Local government are financing the opperations, with sale of land. But there is a limit to that.


The chinease model can't last for ever.

In fact no model can last forever.
In the most simplest layman terms, every economy has three sets of books: household, government, corporate/private. In the middle connecting them all is banks and financial institutions, keeping their own books. Now GDP is keeping track of how changes are made in those books during any given year. Quick and dirty meaning of GDP is total income of all four players in a year. So in China's case, household and corporate/private are saving a lot, roughly 40 percent of total income. So that money doesn't show up in the national income if nobody spends it, use it. In other words, GDP contracts to a level proportionate to amounts of savings, which are stuck in the banking system which shows up as a liability in their books. So government has to step in and spend the savings stuck in the banking system and put them back into national income. That's called debt financing, aka deficit. If you don't do it, you are basically ******.
As savings grow, banks liabilities grows. There comes in the interest rate control in China to reduce the burden of servicing those debts. Households are actually losing money to keep their savings in bank accounts. That's where you see all those batshit crazy property booms and stock markets. People are just trying to make money on their savings somewhere else other than the banks.
Now this awfully large foreign reserves are huge liabilities on banks' books. Those are the savings that Chinese households never get a chance to spend.
If Chinese government wants to see its people spend and consume, they will have to deal with the facts why they want to save so much in the first place. Social security and benefits. Now that's a lot of money. They have to figure out a way to finance it. In comes the property taxes. Change tax codes to make the tax base large. Give them incentives.
So interest rate control should go first to make their life easier, take home money bigger.
Once that interest rate control is gone, Renminbi is half way to become a global reserve currency, on par with greenback current status.
That's the nutshell of how you will see China's economy evolve in next 5 to 10 years' time.

[Theo_Fidel]

Yes, we are not in a race of any kind at all. From the India point of view we should learn what we can from China but set our own milestones.

Despite the 30% destitute at the bottom, the percentage who get a relatively worth while education is immense in sheer numbers. TN alone has about 250,000 engineering students, of which at least a 150,000 are more or less usable. This is a truly immense number.

My critical milestone is per capita GDP of $8,000 to $12,000. At that level we will end poverty and truly begin transforming our infrastructure. IMO this milestone is very much within the 15 years limit, even growing at 6%-7%.

Two other critical milestones will be
Female literacy of 90%+
Fertility rate of 2.1 per woman. right now at about 2.5 and dropping fast.

I think both these can be done in 15 years as well.

Despite all the foolish spin about China beating the world etc, their success is built on one single critical factor. A Fertility rate of 1.6 and keeping it there. This allows very low dependency ratio and the incredible one time investment spree that was then possible. The real question has to be what will China do in 15-20 years, when 20% of its population will be 65+ years. This is projected to rise to 25% by 2040.

For instance ask this question. Will all those 65+ folks want to live in 50 story $300,000 apartments they can not possibly afford.

[sanjaykumar]

BEIJING: Chinese meteorological authority has issued a yellow alert for fog indicating dangerous levels of smog in China's northern and western regions, including major cities like Beijing and Chengdu. It said parts of China were facing the worst recorded pollution.

A news agency quoted Beijing Municipal Environmental Monitoring Center website saying the density of PM2.5 particulates had surpassed 700 micrograms per cubic meter in many parts of the city. The World Health Organization considers a safe daily level to be 25 micrograms per cubic meter.

Earlier, the centre had reported that PM2.5, which indicates air quality, had touched the 500 point in some of the monitoring stations. PM2.5 indicates the extent of floating fine particles, and a level of 350-500 is regarded as hazardous. The WHOhad recommended a PM2.5 level at 20. The level was 19 in NY city at 6pm on Saturday. The US embassy in Beijing, which monitors pollution levels, said PM2.5 has exceeded its highest level of record set at 500.

http://timesofindia.indiatimes.com/home ... 014000.cms


Sorry if I am beating this to death. But sometimes you just gotta look in the mirror.

So, how many Chinese die? For the glorious revolution of getting rich.

[member_20292]

^^^ quite a lot. Individual Chinese are cannon fodder for the larger goal of the greatest Chinese Gross National Power. Quite soviet in its functioning. Modern tech, modern economics. Underlying system is very collectivistic in its thinking.

Individualism is curtailed and shadowed.

Thus the two-facedness. Ultra social + ultra self centered in private. Two faces.

India has the same, to a much lesser degree.

America is good in the sense that private and public is more in line with each other. Self centeredness is not considered to be in poor taste.

[subhamoy.das]

I have been to china several times, first time in 2002

some observations.

3 Exports are already being hurt, as wages and costs in China has gone up. labour that used to cost 300 Us dollar per month only 3-4 years ago, now cost up to 6-700. This is due to the increase in cost of food and living. China is actually turning quite costly now. A lunch at a half decent restaurant will cost approx 50 rmb (Rs6-700). I am not talking of anything fancy, just ordinary place in a second tier city like Xiamen. In india the same meal will cost Rs 3-400.


The chinease model can't last for ever.

It seems that rmb 1500 is a ball park figure for wage of a low skilled worker in a Tier I city and based on your feedback a lunch would cost rmb 100 ( if I just double the price from a tier II city ) in the same city i a simple resturant - 8% of his wage. I would say that in an Indian Tier I city the same worker would be getting Rs 8000 and paying Rs. 250 for a lunch in a simple resturant - 3% of his wage. Life is getting tough at the bottom of the pile for Chinese workers - no?

These is so much of money being pumpled into the system by the CHINESE govt - in a attempt to keep the growth going - is hurting the currency and it is lossing its value to inflation. No wonder things are getting expensive in local currency. And then the currency is also appreciatign visa ve other currencies and hence goods and services produced in CHINA are also getting expensive visa ve other countries. Tricky situation for them - I would say.

[member_20292]

http://www.bbc.co.uk/news/world-asia-china-18327865

That was actually pretty funny Sanjay. thanks.

[Arjun]

I hope you realize that some of this is also because indians are slightly less brand conscious than chinese are, .....the chinese cant get enough of gora brand worship. Indians, much less so.

Mahadevbhu, I would be interested in knowing which sectors of the economy you are talking about - where MNC marketshare is higher in China than in India. Possibly in some consumer product sectors, but any others? Lets take this discussion to the India Economy thread if you have any real statistics on hand to discuss.

[Suraj]

Folks, please keep this thread focused on Chinese economic news. It is not meant for India vs China discussions any more than the Indian economy thread is.

[sanjaykumar]

http://www.bbc.co.uk/news/world-asia-china-21007893

Official Beijing city readings on Saturday suggested pollution levels of over 400. An unofficial reading from a monitor at the US embassy recorded levels of over 800.


Hope the 50 centres can keep straight the numbers coming out of Beijing. Next it will be IQ 400 and the PM 2.5 index at 75. Hehehe.

[heech]

It seems that rmb 1500 is a ball park figure for wage of a low skilled worker in a Tier I city and based on your feedback a lunch would cost rmb 100 ( if I just double the price from a tier II city ) in the same city i a simple resturant - 8% of his wage. I would say that in an Indian Tier I city the same worker would be getting Rs 8000 and paying Rs. 250 for a lunch in a simple resturant - 3% of his wage. Life is getting tough at the bottom of the pile for Chinese workers - no?

Prices have definitely gone up across the board, in every category... eating out is FAR more expensive than it used to be. But 100 RMB is certainly way too expensive... a meal at a KFC in a tier 1 city, for example, would be roughly 20 RMB ($3.50 USD).

http://www.kfc.com.cn/kfccda/minisite/2012lunch_poster/

And of course most workers would choose to eat in a cafeteria / buy boxed lunches rather than KFC. Those meals, in Shenzhen, are usually 10 RMB ($1.50) for 2/3 dishes + a soup + all you can eat steamed rice. Just by frame of reference, those lunches were probably half that price just 5 years ago.

Net effect is still growing standard of living. Incomes have been growing much, much faster than cost of living (outside of real estate).

[Suraj]

heech: Can you expand on the real estate front ? What are prices like in major cities ? How much down ? What are interest rates like ? How much above purchase price does it cost to install fitments, since I read apartments are typically sold bare, without even electrical/plumbing outlets set up ? What about the dynamics of obtaining the typically substantial downpayment ? Does the family chip in or borrow from extended family or unofficial money lenders ?

[heech]

heech: Can you expand on the real estate front ? What are prices like in major cities ? How much down ? What are interest rates like ? How much above purchase price does it cost to install fitments, since I read apartments are typically sold bare, without even electrical/plumbing outlets set up ? What about the dynamics of obtaining the typically substantial downpayment ? Does the family chip in or borrow from extended family or unofficial money lenders ?

I'm a little biased in my answers, because I personally don't like real estate speculation at all... I still think there is a bubble in China. I bought an apartment unit to live in, when I'm in China... in the 6-7 years since I've bought it, it's gone up by probably roughly 300%. I find that pretty ridiculous, and I would think unsustainable... but I've been wrong for 3+ years about that. So, I don't really pay attention to prices / trends. I'm just not that interested.

(There was a message higher up in this thread, which talked about real estate being the only alternative for savings/investments, because bank deposit rates are so low as to actively penalize savers... and that's pretty accurate, I think a good explanation for why there is so much demand for real estate despite very high prices.)

But I can talk about general impressions. I've read that government attempts to hold down prices did have some effect... for about a year or two, it pushed transaction volume nearly to zero (sellers didn't want to sell, and buyers didn't want to buy), but prices didn't really drop significantly. No more than 5-10% in most cities. The last few months though, it really seems like the heat is coming back into the market. I'm seeing more developments being advertised, and I'm hearing prices are starting to go back up again. Just too much demand.

To answer your specific questions:

- "building out" a bare unit isn't very expensive... maybe 4-8% of the purchase cost of the overall unit. (75,000 RMB for a 1.5 million RMB house, for example.)

- a (floating) base interest rate is set by the central bank, and local banks can then offer rates that are offset around that central rate.

- as far as actual rates.. you can look at this chart (shows < 6 months, 6-12 months, 1-3 years, 3-5 years, 5-10 years):

http://www.bankrate.com.cn/chart/homeLoanFlash

- for your first home, you can normally borrow up to 70% of the purchase price. For the second home, it's down to 40% of the purchase price. There are also limitations on age.

- for down payment, usually paid through savings + extended family. You hear stories of speculators borrowing from money-lenders in order to buy hundreds of units at a time... but for 99% of average Chinese consumers, usually very risk averse about taking on debt at all. One very common scenario is to have the older generation / grandparents paying the down payment with their savings, and the younger generation paying the mortgage... and everyone living in the same home.

[Rishirishi]

It seems that rmb 1500 is a ball park figure for wage of a low skilled worker in a Tier I city and based on your feedback a lunch would cost rmb 100 ( if I just double the price from a tier II city ) in the same city i a simple resturant - 8% of his wage. I would say that in an Indian Tier I city the same worker would be getting Rs 8000 and paying Rs. 250 for a lunch in a simple resturant - 3% of his wage. Life is getting tough at the bottom of the pile for Chinese workers - no?

Prices have definitely gone up across the board, in every category... eating out is FAR more expensive than it used to be. But 100 RMB is certainly way too expensive... a meal at a KFC in a tier 1 city, for example, would be roughly 20 RMB ($3.50 USD).

http://www.kfc.com.cn/kfccda/minisite/2012lunch_poster/

And of course most workers would choose to eat in a cafeteria / buy boxed lunches rather than KFC. Those meals, in Shenzhen, are usually 10 RMB ($1.50) for 2/3 dishes + a soup + all you can eat steamed rice. Just by frame of reference, those lunches were probably half that price just 5 years ago.

Net effect is still growing standard of living. Incomes have been growing much, much faster than cost of living (outside of real estate).

Thanks for the update. But my point was that currently China is expensiver as compared to India, for low income people. You can still fill your belly for less then 40 rupees (less then 5 rmb). But the incomes for professionals are similar as compared to China. A good salary would be about RMB 8-10 000 per month for a professional. Hence I think Indians are better off when compared to the earnings to living costs. In the rural area, India has very very low incomes. I do not know how the situation is in China.


There seems to be 3 drivers in the chinease economy. 1 the exports, 2 the property, 3 the government spending on infrastructure. So far the savings rate has been high, but as people get older, they will start to withdraw the money. The youngsters do not seem to be interested in savings.

Sooner or later the construction industry will have to slow down, as there are millions of empty flats. A slowdown will hit the Chinease economy very hard, as it is a huge employer and source of revenue for the local governments.

To proceed forward, I think china will have to sell off a lot of the state owned enterprises, accept to lay off people, make a transparent system to fight corruption, and improve the legal system. It will have to introduce real democracy.

No matter what, China has already manage to build up huge infrastructure (power, rail, ports, roads, etc). Even if it has sluggish growth for a decade or so, it will still be an impressive achievement.

[Suraj]

Thanks heech. What is the penetration of formal banking among people ? Do most/nearly all have accounts with the big four to receive their pay ? Is an account a requirement for anyone working in the organized sector, i.e. no salary payments handed out in cash, say to migrant laborers ?

Expanding on Rishirishi's question, are youngsters as avid savers as the older generation were ? It would appear that a combination of a much more consumption oriented younger one-child generation and an ageing older generation would together combine to drastically erode the savings rate in the coming years, which in turn would significantly hurt the ability of the government to spend on public projects like they do now (and probably at least partly explains why they are spending so much on it now) ?

[amit]

Thanks heech. What is the penetration of formal banking among people ? Do most/nearly all have accounts with the big four to receive their pay ? Is an account a requirement for anyone working in the organized sector, i.e. no salary payments handed out in cash, say to migrant laborers ?

Expanding on Rishirishi's question, are youngsters as avid savers as the older generation were ? It would appear that a combination of a much more consumption oriented younger one-child generation and an ageing older generation would together combine to drastically erode the savings rate in the coming years, which in turn would significantly hurt the ability of the government to spend on public projects like they do now (and probably at least partly explains why they are spending so much on it now) ?

Suraj,

A couple of points, if I may. First of all China's 50 per cent savings rate (or thereabouts) has a huge component that comes from non household sources.

See this chart:



This means that a drastic decline in household savings is not going have as profound effect on money available to the government for its infrastructure projects as it would, for example, in India.

The other point I'd like to make: The study from which that chart comes from has some interesting conclusions.

Our analysis based on cross-sectional and panel data sheds light on different motives that drive the saving behaviour of Chinese households. While the combined effect may be smaller than the separate estimates from the two independent approaches, the results are able to account for a substantial portion of the increase in average saving rates of urban households as well as the U-shaped age-saving profile of savings.

1) We find that motives of saving for precautionary purposes due to rising income uncertainty and for housing purchases explains the rising saving rates of households with young household heads.

2) Pension reforms and rising medical expenditures account for much of the rise in the saving rates of households with older heads

I dunno how authentic the study is but IMO its worth a read. Here's the url

[Suraj]

Amit: why would a significant fall in household savings not affect corporate bottomlines ? It is not necessarily absolute figures that affect investment but marginal changes too. A substantial marginal reduction in household savings can curtain investment by raising interest rates, which in turn has a cascading effect by increasing the debt servicing component of future borrowing. Lower savings due to spending on consumption - especially economically unproductive ones likes either luxury goods or on medical care for old age, further erodes the amount of money that goes into corporate hands, potentially lowering corporate savings rates.

[amit]

Amit: why would a significant fall in household savings not affect corporate bottomlines ? It is not necessarily absolute figures that affect investment but marginal changes too. A substantial marginal reduction in household savings can curtain investment by raising interest rates, which in turn has a cascading effect by increasing the debt servicing component of future borrowing. Lower savings due to spending on consumption - especially economically unproductive ones likes either luxury goods or on medical care for old age, further erodes the amount of money that goes into corporate hands, potentially lowering corporate savings rates.

Suraj,

I'm not saying it will not have an effect. My point is that it will take much longer and a much steeper fall when you have a situation where nearly 50 per cent of savings is from non household sources. I think it will take something very drastic to happen to have a situation were the banks (all owned by the government) will run out of money in China.

And besides, I guess its useful to remember that the Chinese economy still does not behave like a normal economy. Notice the numbers in the article I linked. Savings rates are higher at the younger and oldest age brackets due to various reasons. IMO the usual conventional economic logic that, with rising incomes, consumption, especially among the upwardly mobile, urban middle class young (25-40 age bracket) will go up exponentially does not necessarily hold.

I feel a lot of folks stumble because they try to use conventional economic tools to understand what's happening in China. I don't mean this in a negative sense. What I mean is that what's happening in China is probably unprecedented in economic history - you have a totalitarian/authoritarian regime driving market capitalism with a zeal that is almost unprecedented. That's creating great wealth but it's not creating the social movement/changes that have usually occurred in tandem in other economies.

JMT

[member_20292]

^^^

Its happened in South korea before, an authoritarian regime driving market capitalism.

And I want it to happen in India, now.

[Aditya_V]

I think heech has got to be one of the most reasonable Chinese posters seen on this forum.

[Suraj]

Amit, once again my opinion is that this is not a matter of running out of money. It's a matter of incremental cost of debt servicing in an economy where many industries and investments depend on scale as opposed to margin, to break even. A lower base of savings in such a system would increase interest rates and increase debt servicing load. I don't expect it to happen overnight, nor did I claim as such.

Interesting point about U shaped relationship between age group and savings. I'd have thought it was more of an inverted U, i.e. peak productive years accounting for the highest income and savings potential, while the youngest and oldest have least disposable income or margin of savings.

I don't think the Chinese secret is about the authoritarian aspect as much as the fact that CPC owns all the land in China. It makes them the world's largest landlord, giving them a source of revenue outside of taxation (including property taxation).

South Korea was purely an export driven mercantilist miracle focusing on specific manufacturing industries. They imposed draconian import controls, protected their domestic market from external entities and simultaneously exporting as much as possible while keeping the Won weak. In the 60s they even had punitive taxes on makeup and shampoos, believing that the more they constrained consumption, the more of peoples' savings would be available for capital investment in the manufacturing-oriented chaebols.

[heech]

Thanks heech. What is the penetration of formal banking among people ? Do most/nearly all have accounts with the big four to receive their pay ? Is an account a requirement for anyone working in the organized sector, i.e. no salary payments handed out in cash, say to migrant laborers ?

I don't pretend to have formal statistics on this, but my general feeling is penetration is very high. In urban areas, certainly nearly all have accounts. Even in rural areas, very common / widespread.

I think this is an excellent question, by the way. I think access to this sort of social infrastructure is much more significant in terms of differences between China/India, much more so than high profile projects like high speed rail. Government services really penetrate very deeply into Chinese society. Basically all Chinese have ID cards, have access to a school for their children, can get to clinics / post offices / public transportation, receive low income financial support, etc. Other than perhaps very remote mountainous regions... almost all of China is now very much integrated.

This goes back to the point I made earlier. Probably something like 98% of Chinese, anywhere in the country, can get a job in a city like Shenzhen tomorrow if they so desired. So, while there is reason to be concerned about the income gap between rich/poor in China (as the rich get richer faster)... there's really no large hidden under-class of impoverished people in China who are hidden from public view. The vast majority of Chinese are participating in the economy's growth, at least to some degree. (This is not to imply 100% of Chinese. There were those stories of mentally challenged people being exploited as slaves in brick-making factories in inner China just a few years ago, for example. So, anyone interested in finding anecdotes of Chinese struggling will absolutely find them.)

No one asked for my opinion, and I don't really pretend to know much about India... but I will say this is one thing that I find questionable about the theory of the "demographic dividend" in India. Having a growing young population is great, but more has to be made about the quality of that young population. It seems to me the first priority for India isn't necessarily copying China's airports + expressways, but starting with more grassroots services at an even lower level. Just my two cents.

[subhamoy.das]

heech,

can u please post the cost of the following in a tier I city in China so that we can get an idea about the amount of pay weeks requried to purchase these cosumer good in your country. Please qoute the cost in rmb.

1. Condo or apartment cost per square feet
2. Electricity cost per KWH in house holds
3. Gasoline or petrol cost per liter
4. Schoole fees per kid in a good private school per month
5. Mobile phone bill per month for average use
6. Domestic help cost per month
7. DTV or cable TV charges per month
8. Ticket prices for movies
9. Ticket prices for public transport
10.Taxi fare for a 10km ride

[heech]

heech,

can u please post the cost of the following in a tier I city in China so that we can get an idea about the amount of pay weeks requried to purchase these cosumer good in your country. Please qoute the cost in rmb.

1. Condo or apartment cost per square feet

Shenzhen is far higher than the national average. Purchase price is roughly 20000 RMB per m2, or roughly $370 USD per foot. Rental costs are roughly $0.75 USD per foot for a nice apartment in a high rise, not migrant worker housing.

2. Electricity cost per KWH in house holds

Roughly $0.10 USD / kwh.

3. Gasoline or petrol cost per liter

Roughly $1.30 USD per liter.

4. Schoole fees per kid in a good private school per month

Most attend public schools. But if you want a bilingual school, for example, it would be roughly $5000 a year.

5. Mobile phone bill per month for average use

My 4g plan was roughly $40 USD a month.

6. Domestic help cost per month

Very expensive. You can pay a hourly rate of around $3-4 USD.

7. DTV or cable TV charges per month

$5 base charge, add $1 for HD. Many people buy broadband and watch IP TV instead. My 4M connection cost around $15 USD a month.

8. Ticket prices for movies

As low as $5 for non-peak screenings, standard price around $12-15. IMAX costs even more.

9. Ticket prices for public transport

$0.35 for all subway rides and most bus routes.

10.Taxi fare for a 10km ride

Hmm... roughly $10 USD.

A couple more basic reference points:

- my take-out breakfasts are roughly $1, for a couple buns and some soy milk.
- my lunches are $2 if I'm eating cafeteria by myself, $6 if I'm eating out with friends / colleagues.

A lot of the above are rather rough guesses. Definitely the right order of magnitude, but might be off by 10-20% depending on specific situation.O

[member_20292]

^^^^ sounds like american prices right there. But not american salaries.

Same thing in Gurgaon (suburb of new Delhi)..

dayumm!!