PRC Economy - New Reflections : Dec 15 2011

[heech]

Thank you, heech. That's an excellent post! I'm curious about the topic of the breakdown in social norms over the past four decades in the mainland. Would that imply that you might more implicitly trust a Taiwanese businessman than you would a Chinese one from the mainland, because the former didn't undergo the kind of upheaval the mainland did ?

I think it's more a function of the person who's doing the believing, rather than the person being believed...

In other words, a mainlander (on average) is less trusting of unknown others - regardless of background. A Taiwanese businessman (on average) is more trusting of unknown others. But when you have a whole society of people who on average are less trusting, the resulting difference in cumulative trust is very obvious. Of course these are gross generalizations, and every individual has their own individual background and beliefs.

[DavidD]

Thank you, heech. That's an excellent post! I'm curious about the topic of the breakdown in social norms over the past four decades in the mainland. Would that imply that you might more implicitly trust a Taiwanese businessman than you would a Chinese one from the mainland, because the former didn't undergo the kind of upheaval the mainland did ?

I think it's more a function of the person who's doing the believing, rather than the person being believed...

In other words, a mainlander (on average) is less trusting of unknown others - regardless of background. A Taiwanese businessman (on average) is more trusting of unknown others. But when you have a whole society of people who on average are less trusting, the resulting difference in cumulative trust is very obvious. Of course these are gross generalizations, and every individual has their own individual background and beliefs.

It's almost geographically based as well...I find many Chinese people become more trusting almost the instant they step out of mainland into say the States, and become almost instantaneously more suspicious the moment they step back into mainland. I think people just associate the mainland with this cut-throat, everybody for himself environment and raise their guards.

[chola]

Guanxi helps if you are Overseas Chinese. But being gora gains you far more.

China, especially Shanghai and Beijing, is the number one most sought after foreign location for young white males on Wall Street. Not only does a China posting provides a leg up professional but side benefits are unmatched anywhere in the world -- provided that you are white. We hear stories of MNC interns bedding young, model-quality women by the dozens. Infamously known as "eating tofu" in China -- tasting that which is soft and white.

[sivab]

Chinese growth miracle?

[Rishirishi]

Chinese growth miracle?

Can this even be possible ?? or is it a case of monumental fraud.

[sivab]

From official chinese sources...

http://news.xinhuanet.com/english/china ... 630380.htm

BEIJING, Aug. 14 (Xinhua) -- Total assets in China's banking industry hit 144.2 trillion yuan (23.26 trillion U.S. dollars) by the end of June, up 13.78 percent from one year earlier, the China Banking Regulatory Commission said on Wednesday.

Fully explains china's growth miracle. How long can it be sustained?

[chanakyaa]

From PetroDollar to PetroYuan – The Coming Proxy Wars

Why would the central bank of Nigeria decide to sell dollars and buy Yuan?

At first glance it might not seem the most interesting or pressing question for you to consider. But I think it is one of those little loose threads that if pulled upon carefully begins to unravel the hints and traces of a much larger story. But please be warned this is speculative.

Two days ago the Nigerian Central Bank announced it was going to increase the share of its foreign currency reserves held in Yuan from 2% at present, to up to 7%. To do this it was going to sell US Dollars. Now a 5% swing in anything financial is big. In our debt drunk times it’s difficult somethimes to remember that 2.15 billion dollars (which is what 5% comes to) is actually a great deal of money, even if it is less than a drop in America’s multi trillion dollar debt ocean. On the other hand even a 5% increase in Yuan would still leave 80% of Nigeria’s $43 billion worth of reserves in dollars.

http://www.golemxiv.co.uk/2014/01/from- ... der=feedly

[Liu]

From PetroDollar to PetroYuan – The Coming Proxy Wars

Why would the central bank of Nigeria decide to sell dollars and buy Yuan?

At first glance it might not seem the most interesting or pressing question for you to consider. But I think it is one of those little loose threads that if pulled upon carefully begins to unravel the hints and traces of a much larger story. But please be warned this is speculative.

Two days ago the Nigerian Central Bank announced it was going to increase the share of its foreign currency reserves held in Yuan from 2% at present, to up to 7%. To do this it was going to sell US Dollars. Now a 5% swing in anything financial is big. In our debt drunk times it’s difficult somethimes to remember that 2.15 billion dollars (which is what 5% comes to) is actually a great deal of money, even if it is less than a drop in America’s multi trillion dollar debt ocean. On the other hand even a 5% increase in Yuan would still leave 80% of Nigeria’s $43 billion worth of reserves in dollars.

http://www.golemxiv.co.uk/2014/01/from- ... der=feedly

CHina can provide almost all Nigirian daily demand,from food,clothes,houses,autos and other items at lower price than USA does..

that means,ecnomially, Nigerica needs CHina more than USA

[Liu]

From official chinese sources...

http://news.xinhuanet.com/english/china ... 630380.htm

BEIJING, Aug. 14 (Xinhua) -- Total assets in China's banking industry hit 144.2 trillion yuan (23.26 trillion U.S. dollars) by the end of June, up 13.78 percent from one year earlier, the China Banking Regulatory Commission said on Wednesday.

Fully explains china's growth miracle. How long can it be sustained?

monetary liquid is just the refelction of pyshical industry activity.
so, the increase of monetay liquid according to that of industy output is sustainable.

fact is that CHinese industry output( CHinese capacity to creat pyshical wealth) has keep growing greatly..
for example,

the yearly additional infrastructures(houses,railways,HSP, expressways,roads) CHinese finish is almost equal to the all infrastructures of a mid-size developed economies like S.korea.

as long as CHinese pyshical industry activity can keep growing , the increase of CHinese monetary liquid will be also sustained...

[sivab]

^^^ you are confusing monetary liquidity with banking assets. Can you please point to where article says monetary liquidity? The article talks about total assets in banking system. Assets for banks is a synonym for outstanding loans. If you don't understand this no point in discussing this further.

Every year Chinese banks are adding ~$3trillion of loans to their balance sheet and this is what is driving GDP growth. No country in the world has added as much loans in such a short period of time.
Think about it, China has added loans to the size of entire US banking system in just 5 years. Question is how long is this sustainable?

[Liu]

^^^ you are confusing monetary liquidity with banking assets. Can you please point to where article says monetary liquidity? The article talks about total assets in banking system. Assets for banks is a synonym for outstanding loans. If you don't understand this no point in discussing this further.

Every year Chinese banks are adding ~$3trillion of loans to their balance sheet and this is what is driving GDP growth. No country in the world has added as much loans in such a short period of time.
Think about it, China has added loans to the size of entire US banking system in just 5 years. Question is how long is this sustainable?

banking loan is one of main 3 ways to increase monetay liquidity....

the rapid increase of banking asset is one of main indications how monetary liquidity increase rapidly in CHina.

the sale of CHina industry activity is globle largest...in fact by far larger than USA, the closest runner up.
SO, it is quite reasonbale that CHina has global largest banking asset and monetray liquidity accordingly..

PLS remember, CHina's steel output is more than the combined of the rest world and 10 times of USA's.

last year, global 50%+ steel and concrete were consumed by CHinese,

it means that maybe 50% addional infrastructures(houses,railways,HSR,road,expressway,powerhouse,seaports,airports..etc) are finished in CHina too.

such huge consumption tell us how CHIna's GDP is undervalued by distorted RMB exchange rate and why CHina's has more banking asset and M2 than USA, the nominal global largest economy.

[sivab]

^^^Can you please point to where in the article it talks about liquidity? Can you show any other country that has as much outstanding loans in banking system? Creating physical assets against those loans is not sustainable is the point.

[Liu]

^^^Can you please point to where in the article it talks about liquidity? Can you show any other country that has as much outstanding loans in banking system? Creating physical assets against those loans is not sustainable is the point.

well, China's M2( main indication of monetary liquidity) surpassed USA in 2008.now it is maybe several times of USA's and the by far largest one.

so, it is very normal that no other country has more outstanding loans than CHina,because banking loan is one of main outlets of monetary liquidity.

however,CHina also has global by far largest output capacity of physical asset ,which can match its global by far largest M2...

that is why CHina's inflation is still controlled.

BTW, if the supplies of pyshical assets can not match M2 in one country, then inflation or defaltion would happen surely.

[sivab]

^^^ Liquidity by in itself does not create physical or financial assets, loans do. You are free to drink that cool aid. We will see how this loan growth stands up in 5 years. IMO, GDP growth will slow down considerably because it is unsustainable medium to long term. Otherwise every country will be able to create infinite physical assets just by issuing loans. Nazi german economy did that in 30's and then japan tried that in 80s.

[Liu]

^^^ Liquidity by in itself does not create physical or financial assets, loans do. You are free to drink that cool aid. We will see how this loan growth stands up in 5 years. IMO, GDP growth will slow down considerably because it is unsustainable medium to long term. Otherwise every country will be able to create infinite physical assets just by issuing loans. Nazi german economy did that in 30's and then japan tried that in 80s.

guy,
I repeat again:

1. "loans is one of main ways to increase liquidity(money-printing)"

2. Pyshical asset can not be created not by money-printing,but by industry activity

3. it is important to make liquidity(money-printing) match the sale of industry activity.

Zimbabwe had its liquidty much more than the scale of its industry activity, so inflation happened and its currency becomes useless toilet papers .

China now print global most money,but it match its global largest industry activity, so no inflation happens in China,but RMB is still under appreciation..

that is all.

[sivab]

^^^ I made my points and you yours. Time will tell. Leave it at that.

[Theo_Fidel]

Some prevailing wages in PRC.

http://www.nytimes.com/2013/11/10/world ... =world&hpw

Almost uniformly, Huaming residents say the only jobs open to them are in dead-end menial positions, such as street sweepers or low-level security guards. These jobs pay the equivalent of $150 a month.

Workers pruning bushes in the town’s beautifully manicured park, for example, said they were paid $100 a month and were happy for it.

Even when they can get the well-paying menial jobs of $150 a month, residents overwhelmingly said this barely allowed them to make ends meet. Day care costs $100 per month per child, which would take a third of an average couple’s salary. Unlike in the villages, many families do not live near one another, making it hard to leave children with their grandparents

In a nearby unit, Liu Baohua, an unemployed 62-year-old farmer, said the buildings were almost uninhabitable during the winter. “These buildings look modern outside, but they’re not,” Mr. Liu said. “It’s the worst quality.”

Mr. Liu’s apartment leaks water from the ceiling, which he said maintenance crews told him they could not fix. Windows were double-glazed but the quality was bad and seals broken, causing them to mist up with condensation. Radiators, he said, had almost no hot water. He also showed work bills from maintenance visits in January confirming that his north-facing bedroom was 55 degrees.

“We need to buy space heaters to survive here,” Mr. Liu said. His wife works as a street sweeper and the couple get the equivalent of welfare for an additional $60 a month.

[Liu]

Some prevailing wages in PRC.

http://www.nytimes.com/2013/11/10/world ... =world&hpw

Almost uniformly, Huaming residents say the only jobs open to them are in dead-end menial positions, such as street sweepers or low-level security guards. These jobs pay the equivalent of $150 a month.

Workers pruning bushes in the town’s beautifully manicured park, for example, said they were paid $100 a month and were happy for it.

Even when they can get the well-paying menial jobs of $150 a month, residents overwhelmingly said this barely allowed them to make ends meet. Day care costs $100 per month per child, which would take a third of an average couple’s salary. Unlike in the villages, many families do not live near one another, making it hard to leave children with their grandparents

In a nearby unit, Liu Baohua, an unemployed 62-year-old farmer, said the buildings were almost uninhabitable during the winter. “These buildings look modern outside, but they’re not,” Mr. Liu said. “It’s the worst quality.”

Mr. Liu’s apartment leaks water from the ceiling, which he said maintenance crews told him they could not fix. Windows were double-glazed but the quality was bad and seals broken, causing them to mist up with condensation. Radiators, he said, had almost no hot water. He also showed work bills from maintenance visits in January confirming that his north-facing bedroom was 55 degrees.

“We need to buy space heaters to survive here,” Mr. Liu said. His wife works as a street sweeper and the couple get the equivalent of welfare for an additional $60 a month.

don't rely on west medias such NYT too much ,it often mislead you to nowhere,expecially as for reports on CHina..


here is a link of recruitment cyber-advertisement for on Beidu.
it is mainly recruiting blue-collar workers NOW.

most of those bluecollar jobs needn't skilll or experience and are provided by "sweatshop" so called by many west medias and indians
you maybe can not read Chinese scripts,
but if you can read The Arabic numeral and eaisly find that 80+% of bluecollar jobs have a monthly salary of 2000-4000RMB(340-680USD)
http://opendata.baidu.com/zhaopin/?p=mi ... pn=0&rn=20

[Suraj]

It is important to rely on non-Chinese sources as well, for the simple reason that Chinese data itself is not trustworthy. As heech and DavidD posted earlier, in the mainland, the trust level is low enough that it always pays to be skeptical of information coming out of Chinese sources.

For example, just because Baidu quotes positions with a certain salary does not mean they will actually pay that much to every hired person. Promising the moon in job ads is a fairly common developing country syndrome. Further, the Baidu jobs listed are mostly advertising jobs with some skilled welder/fitter jobs thrown in - at least as per translation. That is not a blue-collar or menial job. Even the skilled welders and fitters are paid higher than regular blue collar rates just as in India, simply because demand for such workers is high.

Managing wage growth has been a significant part of the Chinese growth story. Is it unprecedented ? No, even South Korea did that decades ago. But it's there, as the NYT article states.

[Liu]

It is important to rely on non-Chinese sources as well, for the simple reason that Chinese data itself is not trustworthy. As heech and DavidD posted earlier, in the mainland, the trust level is low enough that it always pays to be skeptical of information coming out of Chinese sources.

For example, just because Baidu quotes positions with a certain salary does not mean they will actually pay that much to every hired person. Promising the moon in job ads is a fairly common developing country syndrome. Further, the Baidu jobs listed are mostly advertising jobs with some skilled welder/fitter jobs thrown in - at least as per translation. That is not a blue-collar or menial job. Even the skilled welders and fitters are paid higher than regular blue collar rates just as in India, simply because demand for such workers is high.

Managing wage growth has been a significant part of the Chinese growth story. Is it unprecedented ? No, even South Korea did that decades ago. But it's there, as the NYT article states.

well,
1. in CHina today, the supply of bluecollar labour is less than the demand,so the starting salary of bluecollar jobs now is almost level with(or a bit more than) that of whitecollar jobs.
for example, the starting salary of a univercity graduate in China is often less than that of a unskilled peasant worker in "sweatshops". of course , the latter job is much toucher and harder and usually has little perspect of rise and promotion.



2. the most prevailing monthly salary in CHina might be 2000-5000RMB(340-640USD).
a monthly salary of less than 2000RMB(340USD) is not acceptable to most normal Chinese.

3.every case of the NYT report might be true,but every case is selected particularlly obviously and tell people a partial story.

4. the job advertisement on commerical medias like Baidu and google is always more reliablel than political/social reports on official/semi-offical medias like NTY ,BBC,and CCTV.
it is so simply because the former serves for commercial purpose and the latter servces for politics...

[Suraj]

A high end blue collar job like a skilled welder or fitter would earn well compared to standard white collar positions anywhere, whether it be the US, India or PRC. That's not the same as blue collar cleaning and maintenance workers. The latter would be paid MUCH less, and is also prone to wage deflation due to migrant people being able to walk in and do it. Since there's no hukou restriction preventing this, wage stability in such jobs is hard to maintain in more expensive areas, leading to an underclass of less qualified people in cities who are priced out by migrant workers willing to do the same job for 30-40% less. On the other hand, no one can simply grab a welding torch and make an expert weld. Not only is that confirmed in the article, but it's plain economic sense.

3.every case of the NYT report might be true,but every case is selected particularlly obviously and tell people a partial story.

We don't have any way of establishing that the reverse is not true as well, i.e. every report from a Chinese source is not embellishing itself. The truth lies somewhere in between.

[milanforever]

As for the salary level, my family live in a city in Southwest China, not the poorest area but certainly not considered a rich area either in the country. As per my parents, salary of average people has been steadily increasing over the years.

As an indicator, my parents currently pay 1800RMB (about $300) per month for a housemaid, who lives with them and works 6 days a week. Accommodation and food is free. This is pretty much the minimum wage in the city, like waiter or waitress who works in a cheap restaurant. I think in the city the most common/typical salary is between 2000~4000RMB ( $300~$640) a month , and a family of three that owns a flat , car and has a combined income of $2500 or more per month is considered middle-class. A big chunk of population in the city belong to this group.

[TSJones]

Definition of 'Liquidity'


1. The degree to which an asset or security can be bought or sold in the market without affecting the asset's price. Liquidity is characterized by a high level of trading activity. Assets that can be easily bought or sold are known as liquid assets.

2. The ability to convert an asset to cash quickly. Also known as "marketability."

There is no specific liquidity formula; however, liquidity is often calculated by using liquidity ratios.

Investopedia explains 'Liquidity'

1. It is safer to invest in liquid assets than illiquid ones because it is easier for an investor to get his/her money out of the investment.

2. Examples of assets that are easily converted into cash include blue chip and money market securities.

[TSJones]

From PetroDollar to PetroYuan – The Coming Proxy Wars

Why would the central bank of Nigeria decide to sell dollars and buy Yuan?

At first glance it might not seem the most interesting or pressing question for you to consider. But I think it is one of those little loose threads that if pulled upon carefully begins to unravel the hints and traces of a much larger story. But please be warned this is speculative.

Two days ago the Nigerian Central Bank announced it was going to increase the share of its foreign currency reserves held in Yuan from 2% at present, to up to 7%. To do this it was going to sell US Dollars. Now a 5% swing in anything financial is big. In our debt drunk times it’s difficult somethimes to remember that 2.15 billion dollars (which is what 5% comes to) is actually a great deal of money, even if it is less than a drop in America’s multi trillion dollar debt ocean. On the other hand even a 5% increase in Yuan would still leave 80% of Nigeria’s $43 billion worth of reserves in dollars.

http://www.golemxiv.co.uk/2014/01/from- ... der=feedly

CHina can provide almost all Nigirian daily demand,from food,clothes,houses,autos and other items at lower price than USA does..

that means,ecnomially, Nigerica needs CHina more than USA

China does not maintain full convertibility of its money. if it did it would react to the market much the way the yen or the dollar does.

What China is trying do, with some success is by pass market valuations and subsequent violatility by reaching nation to nation currency agreements. I dunno but my suspicion is that Nigeria may be one of them.

China is very careful how it lets its currency exchange to the dollar.

[Liu]

As for the salary level, my family live in a city in Southwest China, not the poorest area but certainly not considered a rich area either in the country. As per my parents, salary of average people has been steadily increasing over the years.

As an indicator, my parents currently pay 1800RMB (about $300) per month for a housemaid, who lives with them and works 6 days a week. Accommodation and food is free. This is pretty much the minimum wage in the city, like waiter or waitress who works in a cheap restaurant. I think in the city the most common/typical salary is between 2000~4000RMB ( $300~$640) a month , and a family of three that owns a flat , car and has a combined income of $2500 or more per month is considered middle-class. A big chunk of population in the city belong to this group.

I live in a tie3 city and am among 'mid~class' by your definition.but here it costs 3000~5000RMB(850USD)/month to hire one full~time housemaid with free accommodation and food.

[milanforever]

As for the salary level, my family live in a city in Southwest China, not the poorest area but certainly not considered a rich area either in the country. As per my parents, salary of average people has been steadily increasing over the years.

As an indicator, my parents currently pay 1800RMB (about $300) per month for a housemaid, who lives with them and works 6 days a week. Accommodation and food is free. This is pretty much the minimum wage in the city, like waiter or waitress who works in a cheap restaurant. I think in the city the most common/typical salary is between 2000~4000RMB ( $300~$640) a month , and a family of three that owns a flat , car and has a combined income of $2500 or more per month is considered middle-class. A big chunk of population in the city belong to this group.

I live in a tie3 city and am among 'mid~class' by your definition.but here it costs 3000~5000RMB(850USD)/month to hire one full~time housemaid with free accommodation and food.

You probably live in Southeast China or coastal area where the economy is much better than the western part of China?

I think the definition of "middle-class" varies a lot depending on which part of the country people live in, but mortgage is by far the biggest financial burden regardless of the location. So paying off the mortgage and being debt-free is a big deal. After that probably education.

One thing I did observe is that more and more Chinese travel abroad. Last September and October I was travelling in Austria, Czech Republic and Germany. In a few towns the tourists were mostly comprised of East Asians and among them by far the majority are Chinese (I could tell that from the language and dialect they were speaking). I was kind of shocked in the beginning but soon got used to it.

[Liu]

I live in a tie3 city and am among 'mid~class' by your definition.but here it costs 3000~5000RMB(850USD)/month to hire one full~time housemaid with free accommodation and food.

You probably live in Southeast China or coastal area where the economy is much better than the western part of China?

I think the definition of "middle-class" varies a lot depending on which part of the country people live in, but mortgage is by far the biggest financial burden regardless of the location. So paying off the mortgage and being debt-free is a big deal. After that probably education.

One thing I did observe is that more and more Chinese travel abroad. Last September and October I was travelling in Austria, Czech Republic and Germany. In a few towns the tourists were mostly comprised of East Asians and among them by far the majority are Chinese (I could tell that from the language and dialect they were speaking). I was kind of shocked in the beginning but soon got used to it.

no,I live in Ganzhou,which is one of poorest prefectures in China.the prevail monthly salary here is also2000~4000RMB,but lts house price and life cost is as high as many rich coastal areas.

[chola]

A high end blue collar job like a skilled welder or fitter would earn well compared to standard white collar positions anywhere, whether it be the US, India or PRC. That's not the same as blue collar cleaning and maintenance workers. The latter would be paid MUCH less, and is also prone to wage deflation due to migrant people being able to walk in and do it. Since there's no hukou restriction preventing this, wage stability in such jobs is hard to maintain in more expensive areas, leading to an underclass of less qualified people in cities who are priced out by migrant workers willing to do the same job for 30-40% less. On the other hand, no one can simply grab a welding torch and make an expert weld. Not only is that confirmed in the article, but it's plain economic sense.

3.every case of the NYT report might be true,but every case is selected particularlly obviously and tell people a partial story.

We don't have any way of establishing that the reverse is not true as well, i.e. every report from a Chinese source is not embellishing itself. The truth lies somewhere in between.

Complete waste of time to figure what is the "real" salary in chiniland.

I could care less how much they earn. What is important is how they buy. So the only things that really count for India and the rest of the world are MNC sales figures.

[chola]

From official chinese sources...

http://news.xinhuanet.com/english/china ... 630380.htm

BEIJING, Aug. 14 (Xinhua) -- Total assets in China's banking industry hit 144.2 trillion yuan (23.26 trillion U.S. dollars) by the end of June, up 13.78 percent from one year earlier, the China Banking Regulatory Commission said on Wednesday.

Fully explains china's growth miracle. How long can it be sustained?

No it doesn't. It's like explaining how someone built a giant house -- "Oh, they just printed a lot of money."

The real question is how the crap they print are actually worth anything. How they produced $23T in assets. Except for the select few whose money act as reserve currencies, like Japan and the US, it is simply not possible to create credit in this scale.

If you can simply create credit and build things, then every government in the 3rd world should do this. Create credit, build infrastructure and then default. Voila, you basically build roads and airports without spending money.

[Christopher Sidor]

As for the salary level, my family live in a city in Southwest China, not the poorest area but certainly not considered a rich area either in the country. As per my parents, salary of average people has been steadily increasing over the years.

As an indicator, my parents currently pay 1800RMB (about $300) per month for a housemaid, who lives with them and works 6 days a week. Accommodation and food is free. This is pretty much the minimum wage in the city, like waiter or waitress who works in a cheap restaurant. I think in the city the most common/typical salary is between 2000~4000RMB ( $300~$640) a month , and a family of three that owns a flat , car and has a combined income of $2500 or more per month is considered middle-class. A big chunk of population in the city belong to this group.

I live in a tie3 city and am among 'mid~class' by your definition.but here it costs 3000~5000RMB(850USD)/month to hire one full~time housemaid with free accommodation and food.

Liu some queries. They are of personal nature and it would be understandable if some were not answered
1) On an Average how much do you manage to save? In terms of percentage of your total income
2) Where is this saving predominantly going?
3) Where would you like to invest or save ?
4) Also what percentage of your income goes to pay for food and electricity?

[Liu]

I live in a tie3 city and am among 'mid~class' by your definition.but here it costs 3000~5000RMB(850USD)/month to hire one full~time housemaid with free accommodation and food.

Liu some queries. They are of personal nature and it would be understandable if some were not answered
1) On an Average how much do you manage to save? In terms of percentage of your total income
2) Where is this saving predominantly going?
3) Where would you like to invest or save ?
4) Also what percentage of your income goes to pay for food and electricity?

1.yearly 100~140k RMB .about 30~40% of total income. 2.buying a larger house. 3.buying some real assets. 4.food about8%,electricity less than 1%.

[Christopher Sidor]

Liu some queries. They are of personal nature and it would be understandable if some were not answered
1) On an Average how much do you manage to save? In terms of percentage of your total income
2) Where is this saving predominantly going?
3) Where would you like to invest or save ?
4) Also what percentage of your income goes to pay for food and electricity?

1.yearly 100~140k RMB .about 30~40% of total income. 2.buying a larger house. 3.buying some real assets. 4.food about8%,electricity less than 1%.

So the predominant target of savings is in real estate. Now look at expense in food and electricity. In India's case it is different. The food component takes up significant amount of our salary. For this we have to thank UPA-II and their gift to India of 10% inflation. The fact that a Mainland resident can save upto 30-40% says something. In India on the other hand, our savings rate has declined, as we have had to dip into our savings to tackle the 10% inflation.

The problem with PRC's real estate investment is tackled in a article from bloomberg
China Savers’ Penchant for Property Magnifies Bust Danger ---- Bloomberg dated 5-Feb-2014

Now the problem with real estate in PRC is not that it will undergo something similar to what USA went in 2008. In case of USA the problem was that house buying and flipping was done by borrowing. In case of PRC residents a significant amount of houses are paid for in Cash. So the risk will be borne by the house owners not by financial institutions.

In USA people could take out reverse mortgage on their houses and finance their expenditure. This was the reason that citizens of USA in the first decade of 21st century could spend when the real incomes did not rise.

IF there is a decline in the house prices then the house owners who are ultimately on the hook for the houses may cut back on the discretionary spending.

One potential channel for affecting the economy is through the “wealth effect,” where households tighten their budgets after seeing a decline in their net assets due to a slide in the value of property they hold.

“A sharp decline in house prices would have a perceptible negative effect on household private consumption expenditure, even if it did not lead to substantial stress in the financial sector,” said Washington-based Lardy, who has studied China’s economy for more than three decades.

Any hit to consumption would impair efforts by President Xi Jinping and Premier Li Keqiang to step up the role of spending in the domestic economy and reduce reliance on exports. Li said in an October speech that expanding domestic demand is the “most important” key to adjusting the structure of the world’s second-largest economy.

But this is just potential conjuncture at this moment of time because as the article rightly points out

“A decline in home prices will definitely have a negative impact on consumption -- but since we’ve never had a sustained home-price decline in China, any estimate is quite judgmental,” said Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong.

So there is a possibility of damage to the economy. And it might be ameliorated by high savings rate of PRC's companies or by other policy mechanism of PRC/PBoC.

[Liu]

1.yearly 100~140k RMB .about 30~40% of total income. 2.buying a larger house. 3.buying some real assets. 4.food about8%,electricity less than 1%.

So the predominant target of savings is in real estate. Now look at expense in food and electricity. In India's case it is different. The food component takes up significant amount of our salary. For this we have to thank UPA-II and their gift to India of 10% inflation. The fact that a Mainland resident can save upto 30-40% says something. In India on the other hand, our savings rate has declined, as we have had to dip into our savings to tackle the 10% inflation.

The problem with PRC's real estate investment is tackled in a article from bloomberg
China Savers’ Penchant for Property Magnifies Bust Danger ---- Bloomberg dated 5-Feb-2014

Now the problem with real estate in PRC is not that it will undergo something similar to what USA went in 2008. In case of USA the problem was that house buying and flipping was done by borrowing. In case of PRC residents a significant amount of houses are paid for in Cash. So the risk will be borne by the house owners not by financial institutions.

In USA people could take out reverse mortgage on their houses and finance their expenditure. This was the reason that citizens of USA in the first decade of 21st century could spend when the real incomes did not rise.

IF there is a decline in the house prices then the house owners who are ultimately on the hook for the houses may cut back on the discretionary spending.

One potential channel for affecting the economy is through the “wealth effect,” where households tighten their budgets after seeing a decline in their net assets due to a slide in the value of property they hold.

“A sharp decline in house prices would have a perceptible negative effect on household private consumption expenditure, even if it did not lead to substantial stress in the financial sector,” said Washington-based Lardy, who has studied China’s economy for more than three decades.

Any hit to consumption would impair efforts by President Xi Jinping and Premier Li Keqiang to step up the role of spending in the domestic economy and reduce reliance on exports. Li said in an October speech that expanding domestic demand is the “most important” key to adjusting the structure of the world’s second-largest economy.

But this is just potential conjuncture at this moment of time because as the article rightly points out

“A decline in home prices will definitely have a negative impact on consumption -- but since we’ve never had a sustained home-price decline in China, any estimate is quite judgmental,” said Ding Shuang, senior China economist at Citigroup Inc. in Hong Kong.

So there is a possibility of damage to the economy. And it might be ameliorated by high savings rate of PRC's companies or by other policy mechanism of PRC/PBoC.

the price of houses in the city has increased 1000+% since 2000.it proves that buying real estate is the wisest investment here. case is that more and more people are moving into the city and people's income is still increasing . I am confident that real estate will be a wise investment untill my kid graduates in 20 years.

[Theo_Fidel]

In India on the other hand, our savings rate has declined, as we have had to dip into our savings to tackle the 10% inflation.

OT here but there is no real evidence for this.

Household savings remains high. At least above 30% of savings.
What has declined is PSU savings. From about 10% to 2% now. This is what has brought our savings rate down from 35%-40% to 30%-35%. With increasing wages household savings have been able to keep up with inflation and even compensate a little for the PSU dis-savings. A lot of our problems can be laid the feet of the monopoly PSU’s unable to contribute to growth.


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the price of houses in the city has increased 1000+% since 2000.it proves that buying real estate is the wisest investment here. case is that more and more people are moving into the city and people's income is still increasing . I am confident that real estate will be a wise investment untill my kid graduates in 20 years.

Sure. Because this time it is different right. And housing prices will increase another 1000%. Till everyone in China lives in a $5 million apartment. Any day now....

[Rishirishi]

the price of houses in the city has increased 1000+% since 2000.it proves that buying real estate is the wisest investment here. case is that more and more people are moving into the city and people's income is still increasing . I am confident that real estate will be a wise investment untill my kid graduates in 20 years.

Now I understand what is going on. Liu my fried, be careful. The future cant always be predicted based on the past. Rather the future may be a reaction to the past.

[Liu]

In India on the other hand, our savings rate has declined, as we have had to dip into our savings to tackle the 10% inflation.

OT here but there is no real evidence for this.

Household savings remains high. At least above 30% of savings.
What has declined is PSU savings. From about 10% to 2% now. This is what has brought our savings rate down from 35%-40% to 30%-35%. With increasing wages household savings have been able to keep up with inflation and even compensate a little for the PSU dis-savings. A lot of our problems can be laid the feet of the monopoly PSU’s unable to contribute to growth.


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the price of houses in the city has increased 1000+% since 2000.it proves that buying real estate is the wisest investment here. case is that more and more people are moving into the city and people's income is still increasing . I am confident that real estate will be a wise investment untill my kid graduates in 20 years.

Sure. Because this time it is different right. And housing prices will increase another 1000%. Till everyone in China lives in a $5 million apartment. Any day now....

the prefecture has a population of about 9M but about 60% of them still live in rural area.
so,the urbanization will not be finished and the house price will also keep growing before 2020-2030

[Liu]

So the predominant target of savings is in real estate. Now look at expense in food and electricity. In India's case it is different. The food component takes up significant amount of our salary. For this we have to thank UPA-II and their gift to India of 10% inflation. The fact that a Mainland resident can save upto 30-40% says something. In India on the other hand, our savings rate has declined, as we have had to dip into our savings to tackle the 10% inflation.

.

do you know Engel's Coefficient?

it proves that the less one family earn, the more amount of its total income the food component take up .


it was just in the past decade that the Engel's Coefficient of CHinese families has gone down considerable,due to the increasing income.

to me, the food and other daily life expenditure (electricity,water,gas,Property management fee,car maintaince,mobilephone) take up about 20-25% of my total income.

the biggest burden is to pay off mortgage loan. it takes up of 40% of the total income.

[Theo_Fidel]

the prefecture has a population of about 9M but about 60% of them still live in rural area.
so,the urbanization will not be finished and the house price will also keep growing before 2020-2030

?!?

[Christopher Sidor]

In India on the other hand, our savings rate has declined, as we have had to dip into our savings to tackle the 10% inflation.

OT here but there is no real evidence for this.

Household savings remains high. At least above 30% of savings.
What has declined is PSU savings. From about 10% to 2% now. This is what has brought our savings rate down from 35%-40% to 30%-35%. With increasing wages household savings have been able to keep up with inflation and even compensate a little for the PSU dis-savings. A lot of our problems can be laid the feet of the monopoly PSU’s unable to contribute to growth.


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Look at the sharp decline in the red line at the fag end. The reality is different and in many cases worse than it is captured in government stats.

[Rishirishi]

So the predominant target of savings is in real estate. Now look at expense in food and electricity. In India's case it is different. The food component takes up significant amount of our salary. For this we have to thank UPA-II and their gift to India of 10% inflation. The fact that a Mainland resident can save upto 30-40% says something. In India on the other hand, our savings rate has declined, as we have had to dip into our savings to tackle the 10% inflation.

.

do you know Engel's Coefficient?

it proves that the less one family earn, the more amount of its total income the food component take up .


it was just in the past decade that the Engel's Coefficient of CHinese families has gone down considerable,due to the increasing income.

to me, the food and other daily life expenditure (electricity,water,gas,Property management fee,car maintaince,mobilephone) take up about 20-25% of my total income.

the biggest burden is to pay off mortgage loan. it takes up of 40% of the total income.

In India (do not know about china), the definitian of "daily essentials" has been even expanding. Now it includes cars, fuel, branded clothing, holidays and banded food, AC etc. I feel Indians today are saving less and less. Even people with business and over 100K dollar income feel the pinch as the presure to purchase luxury goods is ever increasing.