Eggs in HangzhouAn informal study picked up in this Wall Street Journal blog shows that a number of basic items in East China (Hangzhou, Zhejiang Province) are actually more expensive than the same items found in Boston. The study compares basic things like eggs, milk, beef, gasoline and apartments and finds that those aspiring to join the Chinese middle class are going to pay heavily for the privilege.

When I was an expatriate in Shanghai in the 90’s, the cost of living for my family was 50% higher than that of Hong Kong but that was largely due to government imposed restrictions. Private housing was a brand new concept, expats were restricted to certain government controlled areas that charged outrageous rents and private car car ownership was almost unheard of (bicycles and buses were the main form of transportation around town). Beef and milk were frivolous luxuries and priced accordingly. A comparison of this sort 10-12 years ago would have been an apples-to-oranges type of undertaking.

But in the major cities of Eastern China (Zhejiang Province, Jiangsu Province and Shanghai municipality), owning a 100m (3600 sq ft) apartment, driving a nice car and buying more than rice and veggies for dinner have become the signposts of entry into the middle class for the young urban professional couple and their one child. The fact that these prices are both on the rise and that they constitute a much higher proportion of disposable income than in Boston is a serious political issue for China.

But Chinese officialdom is no better off than the hamster on its exercise wheel. Slowing the economy to control inflation imported from the US FED’s extremely accomodative policy (through a nearly fixed exchange rate) runs the risk of stalling the economy and sending tens of millions of urban workers to the unemployment lines. Keeping the hamster wheel going at present speed threatens a return to double digit inflation off a not so low base (as demonstrated in this article) which will eventually price China out of its traditional export based markets.

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Filed under: ChinaCurrencyInflation/DeflationSoft Commodity

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