A Lesson in Chinese Economics

I was standing outside a basketball gym the other day when I struck up a conversation with a Chinese friend. Usually we talk about pretty mundane and casual things but that day we actually dove into the colorful world of Chinese economics, and it shocked me. I was shocked not so much that I was talking economics with a Chinese man (although that is odd), but that both of us - a 25 year-old from Texas and a 37 year-old from a remote part of China - shared a similar interest and concern for what is happening right now in China.

I'm not sure how many of you keep up-to-date with international news, especially here in China, but some interesting things have been happening over here that I think have an impact on all of us. SO...I did some research for my own benefit and thought I'd pass along what these recent news-worthy events have to do with you, me, and the common Chinese person outside a basketball gym. Enjoy.

My parents visited us in China this February and we fortunately traveled in the north part of the country. We visited pretty much every site we could in both Beijing and Xi'an, both considered to be "the north". Meanwhile, during our adventures, a bad ice storm was wreaking havoc on the south of China, causing damage that many estimated set the government back over $1 billion (which is quite a lot when you consider how much they're spending on the upcoming Olympic Games). Transportation was halted, fields of crops were decimated, roads were impassable and the people were absolutely miserable. Someone once told me that north of the Yellow River, city-wide heating systems are a common thing but to the south they still rely on coal heating. When coal reserves ran dry because the trains transporting the coal from our area (Xinjiang) to the south were stuck somewhere in the snow, many people just had to bundle up and endure the frigid temperatures. It's also important to realize that this February holiday, equivalent to America's Christmas holiday, is the busiest traveling season and the worst time to have the transportation system grind to a halt. Here you can see a cartoon in a recent Beijing newspaper that pretty much describes the traveling situation without a snow storm in February, not to mention how bad it was when half of the train lines were down.

At the same time, the trains that usually transport the crops and livestock from the south up to where we reside were also stuck. The result has been a noticeable inflation at both the supermarket and in the restaurants. I can remember a time in the US when a gallon of gas was 75 cents or the Big Mac meal was $2.99, but that inflation was over the course of more than a decade. I've never seen inflation over the span of less than a year make such a noticeable difference.

Ok, let's rewind for a second and let me add a note that this inflation is something that has been slowly happening in China long before this record storm hit last month. Over the past years the government of China has made efforts to ease the inflation by imposing price controls (on things such as gas and food) and by subsidizing farmers who grow grains and pigs. This has helped...a little. Still, it is reported that this storm along with many other factors caused the price of food to raise 6.1% just in January! As a result of all this the government has answered by recently raising the minimum wage. You can begin to see now why these events have so riveted even the common Chinese working man or woman.

But how does this affect Americans? Well, simply put, for Tiffany and I it's wonderful...for you guys not so much. All of this economic commotion has strengthened the yuan (the Chinese currency) against the US dollar, which in laymans terms means that since we arrived here as teachers, our salary has increased 11% without even getting a raise! Again, wonderful for us, not for you. This strengthening of the yuan coupled with the rise in minimum wages added to so many more things means that in the next few years the label "Made in China" might not always be your cheapest option. Or worse still, it might still be your cheapest option but it will be more expensive. Already there is news that many companies are leaving China in search of cheaper places for production, places such as Vietnam, Indonesia and India. So that iPod you bought last year might not be going down in price for the 2008 holiday season.

All of these things are begging for bigger changes to be made but I wouldn't expect much to happen before the 2008 Olympics. I'm not making predictions, but I wouldn't be surprised if big things happened in September this year following the Olympics. Beijing will hold a crowded, but good, Olympic Games I'm sure, after which it can finally begin to focus its time and money on other things.

Well, that's about it. I'm not an economics expert, so take all of this with a grain of sand. And if it bored you to death - I apologize, these posts won't come often. It just doesn't usually happen that I find common ground with a friend here on something as complex as inflation. And now you know what happens when I do - I blog it for you. Yah!

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