Shanghai Closes in on New York-Level Prices

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SHANGHAI, Aug. 25 – Shanghai and Beijing are getting close to prices one would expect to pay in New York for certain products, a recent UBS survey has found.

The “Prices and Earnings 2009” report was issued to the bank’s high net worth value individuals and compares a variety of prices for commodities ranging from food to auto on a global basis. Using New York as its benchmark, this year’s report highlights the expensive purchasing draw that cities such as Beijing and Shanghai can now command. Some of these are benchmarked below.

UBS took a basket of 39 food items, including important staples, and adjusting for seasonal variations, cultural and climatic factors, factored into that an average price globally for that basket of US$385. New York priced out at US$571, while Beijing reached US$348 and Shanghai US$404, despite China being a massive agricultural producer with far lower land and labor costs. India was at the other end of the scale with the average basket for the same commodities costing just US$178 in Delhi and US$153 in Mumbai.

The cost of a three-course evening meal at a good quality restaurant without drinks and including gratuity also shows that it is now nearly as expensive to dine out in Shanghai as it is in New York. According to the survey, in New York such a meal would cost US$50 compared to US$45 in Shanghai and US$25 in Beijing.

Electrical goods and home appliances
A basket of various household electrical items averaged out at US$3,210 globally, with New York at US$2,790. China realized prices of US$2,830 in Beijing and US$2,510 in Shanghai, meaning the same goods cost more in Beijing to buy than in New York, despite the additional cost of freight to New York and the likelihood many of the products were manufactured in China.

Men’s and women’s clothing
Shopping for a complete man’s and lady’s outfit – jacket, trousers/skirt, shirt/blouse, underwear and shoes – in an off-the-rack, own brand large department store, costs an average of US$885 per outfit in New York, US$708 in Beijing, and US$550 in Shanghai. China is the world’s cheap textile powerhouse yet the mark ups on finished goods seems high. India, the world’s second largest textile producer, was able to get the same outfits into its stores for an average of US$243.

Due to different models being sold in different markets, the survey compared different, yet similar models of vehicles. These came out as follows in terms of vehicle and on-the-road (license tax inclusive) purchase prices for new models:
New York – Toyota Corolla: US$21,090
Beijing – Honda Accord Sedan: US$31,690
Shanghai – VW Passat 2.0: US$32,641

The surprising closeness of prices for these commodities may be due to a number of factors. Firstly, despite low manufacturing and export costs from overseas markets, U.S. retailers have hefty profit margins. The prices of electrical goods are a good indicator of this. Secondly, distributors in China are also getting increasingly wealthy and driving prices up, especially in domestic cities considered affluent. While the high prices for these commodities is no doubt good news for those businesses involved in making money from them in China, it does start to beg the question where the justification for the narrowness of bands now apparent between New York – one of America’s wealthiest cities – and those of China lies, especially when comparing land and labor costs, which in New York are generally higher by a multiple of eight.

While driving up the prices of commodities may be part of the capitalist system, it does seem a little out of synchronization that in the products listed above, Beijing and Shanghai are no longer fractions of the prices commanded in New York, but can now command prices across the board that are comparable, and in some instances higher. While that may be artificially inflated by the government in terms of auto purchases, concerns should start to be raised in the now very high prices residents in Beijing and Shanghai pay for basics such as food. Clearly, the demographics between the United States and China are changing. Distributors should be conducting price point surveys and expatriates looking to move to China may want to consider the living costs of doing so.

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