Last week, the Economist Intelligence Unit released the results of its worldwide cost of living survey. Shanghai topped the list for Mainland cities, climbing 13 places from last year to match Tokyo as the 11th most expensive city in the world. Eight Chinese cities ranked among the world’s 60 most expensive.
While comparing the prices of 160 products and services across 133 of the world’s cities can be quite difficult as purchase behaviour varies so much between cultures, there is a clear message: Chinese consumers are paying high prices for a lot of things.
The high cost of living is in stark contrast to another report released last week by Goldman Sachs, highlighting the disparities between China’s consumer classes. The study found that China’s 770.4 million working population spend an average $7 a day, versus $97 a day in the US.
$7 wouldn’t get you far in the world’s 11th most expensive city. That $7 obviously includes the 50% of China’s workforce who live in rural areas, earning and spending a fraction of what their urban cousins do. China’s eight most expensive mega cities account for less than 10% of its population, but they make up a much larger portion of discretionary purchases.
Even in cities like Shanghai, there are workers living cheaply. A migrant construction worker for example, is likely to get basic lodgings and food provided by his employer. And if he feels like spoiling himself, he can get a bowl of noodles on the street with protein and veges for less than a $1.
Meanwhile, a white collar worker in the building next door could be dropping $10-$20 on lunch, or even more. They may only be making $12,000 a year, but their priorities mean they’re spending more on a litre of pasteurised milk, a night out at the cinema, a cup of coffee, or even locally-grown apples, than in most developed economies. These are the consumers driving the demand that is pushing Chinese cities up the cost of living table.
Many consumer segments that are buying foreign products and services are only a niche by Chinese standards. Take China’s international travellers. Just 6% of Chinese have passports and, including those who visit Greater China on a Travel Document, collectively spent nearly $200 billion abroad last year – almost double what the 2nd placed Americans spend.
Most Chinese niches are growing and presenting evermore opportunities. But it’s important to reach those niches in the right places, with the right propositions. China Skinny can assist with that. Go to Page 2 to see this week’s China news and highlights.