In China's Orbit
online.wsj.com
online.wsj.com
There was a time when being on an expat package in Beijing meant living the good life - you could splurge however you wanted because the cost of living was so cheap. Today, my products are really pushing the affordability of the expats here but are considered a great value by the new middle class here. Several times a week I get complaints from expats that our prices are too high. I've never heard that from a Chinese. Indeed, the opposite is true, several times a week Chinese people tell me what a good deal I'm offering.
It's actually getting a bit problematic for me. Inflation's pushing my costs up and my competitors are raising their prices as well. I've been raising prices alongside everyone else, but I'm really about to price myself out of the expat market. Expats who receive their paychecks in dollars are seeing their purchasing power diminish and I think it's having a big psychological effect on them. They're really important to me, but I would be crazy to not be trying to reduce the percentage of sales that they constitute.
This is directly impacting my spending decisions. A few years ago, it would have made sense for me to drop money to advertise in expat magazines. These days, that extra money's all going to marketing towards the Chinese.
A lot of my customers, who are white-collar, have made good money in the stock market over the past decade and also in the real estate market.
But to be honest a lot of it is a matter of confidence. My Chinese customers definitely don't make as much as their American counterparts on average, but there is a sense that life is getting better and better, they're making more and more money, they have savings in the bank, so it's OK to splurge from time to time. I would say 40-50% of my Chinese social circle owns an iPad, even though they probably only pull in 20-30k USD a year.
In a country that's more capitalistic than America and yet still have inferiority complex still fresh from 50 years ago, you've got to flaunt your wealth even if you don't gotta it.
Prior to the 2008 financial crisis, the Chinese index was up to 10x from 2000. "Stir-fry stocks" is a national obsession as much as Sunday football states-side; and even now, the real estate market speculation is climbing northward to basically match NYC condo price for a Shanghai condo.
So like the 1920's America, no the average Chinese citizen is not making all of this money but a select few have's are making money hand over the fist off the have-not's. Modern China is a rich man's heaven and a poor man's hell.
I've noticed this trend with folks who came from an emerging economy. In my case, growing up in an immigrant rich area, it was hard not to notice all of the Korean kids with the designer clothes, and parents picking them up in new BMW, Benz and Lexus cars -- most of whom worked their tails off to get into the choicest colleges. Inquiring about their first generation immigrant parents almost always revealed they worked their asses off in low-end jobs like grocery stores, cleaning services or dry cleaners and often as not lived in crummy apartments in a sketchy part of town. The need to project a "wealthy" image was so great that they often were in deep debt to buy all that stuff. It seemed crazy to me till years later I started to understand better the social pressures that caused this phenomenon.
Thought this was a great analysis over the issues of the Chinese real estate and why so many people are putting their money into it. http://marketplace.publicradio.org/display/web/2010/11/18/pm...
But capitalism is only a part of their success. Everyone knows you should do some free trade and open up the economy. The really hard part of running a country is managing the powerful internal special interest groups and getting all the systemic incentives aligned correctly so that people work together to produce better government and a better economy. Russia and many others have tried capitalism and failed because their political systems sucked.
The triumph of the Chinese leadership is how they have adapted the Singapore model, managed their powerful internal special interest groups and an insanely diverse geography and ethnic populations that don't speak the same language, keeping the country together, while getting a growing number of people to work on improving government and the economy and moving towards creating a fair, unified, and stable environment for business and wealth and improving peoples lives.
edit: I suppose I really know nothing about the moral standing of the Chinese core leadership. I don't know what they are thinking. But I see how many they have lifted out of poverty and their dedication to improving government and the lives of those people.
I'm not sure this is a fair statement. To me, referring to a system as optimal implies a sense of finality, as though we have a rigorous, tested proof that this socioeconomic system we've developed in the West is optimal and complete. Again, to me, this is an absurd notion.
http://www.pakg1.net/2010/10/changing-chinese-mindset-toward...
http://en.wikipedia.org/wiki/Niall_Ferguson
(One may argue with aspects of his outlook and analysis, and even his scholarship -- as have the likes of Paul Krugman -- but even so, he's one of the most famous historians of the current period, and an excellent prose stylist besides.)
http://www.ccer.edu.cn/download/8359-1.pdf
But it's from 2007, wondered if there's anything more recent.
It's all fine and dandy now - china makes cheap goods and exports them to the rest of the world. In addition, they are slowly taking on more sophisticated tasks as evidenced by their latest super computer, I'm sure soon we will see contributions in technology to the world economy.
But what will happen when the rest of the world gives them the proverbial finger? When they finally say - screw you, either open your market to us, compete with the rest of the world's rules - or fuck off we won't buy your goods.
Is this possible? Would the world even be able to afford such a stance? Or will this happen and what will china do? How much would the projected GDP of the US be if it included china's 1bn population and the potential market it within it?
What makes access to the chinese market difficult for westerners, apart from the luxury/status items? The language and cultural barriers are still significant.
For example, the US (rightly) worry about Chinese military expenditures, especially for blue water navy (which is generally considered the biggest advantage of US army from a geopolitical POV). But right now, the US have more capacity than all the other "power" with blue water capability altogether (Russia, France, UK) and more. 40 % os all the money spent in defense by gvts is spent by the US. What's symmetrical about it ? Note that I am not making a judgement, but those are hard facts that nobody can argue with, whatever their opinion is on the matter.
Outside the US, analysts generally refer to a "rebalance" of powers. That China will reach US-level GDP and above is almost certain - but there is nothing that exceptional about is when you have 4 times more people. China with a GDP/habitant ~ western levels would be incredible, though. Although I am confident I will see China becoming the first power in term of GDP, I would be ready to bet that I won't see GDP/habitant rise at the same level as its western counterparts. Making projections in 40 years sounds dangerous anyway - I don't know what the future holds, but I am sure it won't be the people predict.