China’s Inflation Rears its Ugly Head

For many, “cheapness” has been perceived as the key competitive advantage of the Chinese economy 

Cheap is really relative. The following article shows how inflationism by Chinese authorities has led to expanding relative “expensiveness” on many goods.

From Wall Street Journal (hat tip Zero Hedge)

In China, consumers pay nearly $1 more for a latte at Starbucks than their U.S. counterparts. A Cadillac Escalade Hybrid Base 6.0 costs $229,000 in China, compared to just over $73,000 in the U.S.

Welcome to China's modern retail world, where the price of many goods is far higher than in many other countries, a disparity that is all the more stark considering the income differences. A basic iPad 2 is priced at $488 in China, where average per capita income is around $7,500. The same tablet is $399 in the U.S., where average per capita personal income totals $42,693.

Clothing and other apparel is on average 70% more expensive for consumers in China than in the U.S., according to data from SmithStreet, which compared the prices of 500 items of 50 brands in both countries.

Government taxes and import tariffs are to blame for a lot of the price discrepancy, but for years the burgeoning Chinese middle class also seemed willing to pay more for products with consumer cachet, particularly imported goods. And companies happily charged what the market would bear, even finding high prices could help provide a quality halo effect, winning customers psychologically. In many cases, when foreign manufacturers charged more, Chinese producers followed suit.

Many Chinese turn to the internet’s eCommerce as alternative to pricier domestic goods. From the same article...

But today more Chinese consumers are pushing back, weary of sticker shock—and enlightened by the ability to compare prices elsewhere, thanks to the Internet and increased travel abroad.

Disgruntled shoppers like Guan Honglei, a 30-year-old finance worker who will shop only on overseas websites or in Hong Kong, have big implications for retailers that have raced to expand brick-and-mortar stores in mainland China.

"It's not worth shopping in China," said Mr. Guan, adding, "If you can wait, do it elsewhere."

It’s worth noting that while China’s statistical inflation rate has been tamed, domestic prices for many goods has been rising faster than the world. 

The implication is that Chinese authorities have been inflating at a faster pace compared with the others (chart from Mao Money Mao Problems).

The other interpretation is that statistics are hardly trustworthy since in the recent case, Chinese statistics which has been unfavorable to the powers that be has been censored, deleted or hidden.

It can be both

Should Chinese consumers elect to shift trade towards eCommerce based imports, then Chinese economy’s trade balance will likely transition from surpluses to deficits which will have to be funded by a reduction of savings or a build up on debt.

And as a result from all interventions (inflationism, government taxes and import tariffs—of course credit fueled property bubbles) Chinese productivity will shrink.

These are hardly signs that bolsters the case of a “Chinese century”