Standards of Living
Via the All Roads Lead to China blog, I was able to read this Financial Times op-ed by David Pilling that brings up America's "Asian addiction" as a major contributing factor to the ongoing economic crisis in the US.
It's an interesting read if this is something up your alley. And since this is a blog (and not journalism), what follows is how we've experienced some of Pilling's observations.
I know that the image of "shiploads of cheap goods" often conjures in Americans' minds the boatloads of whatever you see at WalMart or Dollar General or even Radio Shack. However, included in these shiploads are also what we in manufacturing sometimes call guzintas (I know--highly technical term). "Goes-into" is what that really means. The company Randy currently works for supplies magnets and magnet assemblies to industrial customers in Europe and the US, and many of these customers are automotive. While the Fords and the Chevys cruising around the streets of the US are still produced in North America (including Mexico), many of the components inside the vehicle are no longer. By sourcing these component-level products in low-labor and low-material cost areas, like China, the prices on cars in the US have remained relatively stable. Heck, it isn't just the little motor and sensor components like Randy's company makes coming from China these days; the Chevy Equinox now has a China-sourced engine. There are a host of products, from cars to power tools to household appliances that, even if assembled in the US, require Chinese-produced guzintas to keep the price attractive to the American consumers.
Another point that I found interesting about this Financial Times op-ed is the statement comparing American standard of living with the Asian standard of living. "Asians have lived below their means so that Americans could live beyond theirs," claims David Pilling in his column. I know for me, and probably for a lot of people, this conjures images of the rural poor in China, or the over-worked factory workers living in cramped dormitories like we sometimes see on the news (but, fortunately, never at Randy's company, which is still American-owned). However, there is more to it than that, and all I have to do is look around my garden.
I've blogged about our neighborhood many times, and I've said that our neighbors could easily be described as upper-middle class, maybe even rich, by Chinese (and possibly American) standards. The selling price of finished apartments in our garden is in the RMB 1.5-4 million (US$220,000-600,000) range. While this is a considerable investment (even in the US I wouldn't dream of even just looking at a house in this price range), where the rest of their money goes....well, it isn't into the types of things we Americans would see as essential in a $220,000 home.
Twice this year we have looked at dozens of apartments in this garden and we were amazed at how the apartments were not equipped. Few were the ones that had hot water anywhere but in the shower. In our current apartment, every time I wash dishes or need to wash a load of laundry in anything but cold water, I have to put the kettle on the stove and boil water. Most of my neighbors do not own dryers, preferring instead to hang their laundry out than spend the money on the appliance and waste the money on the electricity. I was tsked-tsked by our current landlord because my electric bill last month was an excessive and wasteful RMB 1006 (US$146). He couldn't believe how much we run our air conditioners and our dryer. We pay the electric bill, but he couldn't help himself in expressing his amazement at our wastefulness. While I'm on the topic of laundry, at least one apartment we toured didn't even have hook-ups for a wash machine. The owners and their tenants, or more likely their maid, hand-washed their clothes in a sink. There was still on the sink the bars of Tide that are still all-so-common in the grocery stores. Can any American imagine being able to afford a $220,000 house and not even spend the money on a decent washer and dryer?
Most apartments we've seen don't have heat (not absolutely essential in South China, but this past winter we really needed it), some don't have A/C (have I mentioned that it is usually over 30 degrees C here from April until Novembr?). None have dishwashers (though back in Shekou where the foreigners live it is more common). Some even don't have much in the way of refridgerators.
Additionally, can any American imagine paying $220,000 for a home and not be able to drink the water coming out of the tap? Ever? Having a plumbing system that constantly backs up, unable to handle the population, and causes our bathrooms constantly to smell like......well, other people's bathrooms?
Certainly, if we were to buy an apartment in our garden, our $220,000 dollars (plus monthly management fees) would buy us safe and beautifully maintained grounds, and two gorgeous, resort-like pools, and a location very convenient to such things as interest our neighbors. For what is available, the sale prices in our garden are really quite a deal. Most other gardens similarly equipped from a grounds standpoint are full of RMB 5-7,000,000 or even more apartments and villas.
However, it isn't that our Chinese neighbors can't afford these "luxuries" of hot sink water or dryers, or at least as we understand afford. In the US we frequently calculate affordability based upon our monthly payment--house payment, car payments, Lowe's Credit Card payment, etc. Here in China, it is certainly another story. Credit isn't as loose here, and in the absence of any type of fixed-rate financing, many people I know who have bought apartments are in a hurry to get them paid off before they try to make any other major purchases, like cars. But a lot of people consider "wasteful" the very things we would consider essential. And we rely on their not owning these things so that we in the US can. For now.
Did America hang itself with Asian rope? I put this to a Chinese official last week and, quick as a flash, he responded: “No. It drowned itself in Asian liquidity.”
Asia’s part in America’s financial downfall has been two-fold. First, shiploads of cheap goods from China and other low-cost producers helped keep a lid on US prices. That lulled the Fed, with its tight focus on the consumer price index, into thinking it could have it both ways: high growth with low inflation.
snip
In one sense, this is a story of Asian prudence versus US recklessness. By accumulating vast savings – China and Japan alone boast 40 per cent of global central bank reserves – Asians have lived below their means so that Americans could live beyond theirs. Asia bankrolled US budget and trade deficits and provided the cash for banks and individuals to go on a spending spree and for Washington to fight wars in Afghanistan and Iraq.
It's an interesting read if this is something up your alley. And since this is a blog (and not journalism), what follows is how we've experienced some of Pilling's observations.
I know that the image of "shiploads of cheap goods" often conjures in Americans' minds the boatloads of whatever you see at WalMart or Dollar General or even Radio Shack. However, included in these shiploads are also what we in manufacturing sometimes call guzintas (I know--highly technical term). "Goes-into" is what that really means. The company Randy currently works for supplies magnets and magnet assemblies to industrial customers in Europe and the US, and many of these customers are automotive. While the Fords and the Chevys cruising around the streets of the US are still produced in North America (including Mexico), many of the components inside the vehicle are no longer. By sourcing these component-level products in low-labor and low-material cost areas, like China, the prices on cars in the US have remained relatively stable. Heck, it isn't just the little motor and sensor components like Randy's company makes coming from China these days; the Chevy Equinox now has a China-sourced engine. There are a host of products, from cars to power tools to household appliances that, even if assembled in the US, require Chinese-produced guzintas to keep the price attractive to the American consumers.
Another point that I found interesting about this Financial Times op-ed is the statement comparing American standard of living with the Asian standard of living. "Asians have lived below their means so that Americans could live beyond theirs," claims David Pilling in his column. I know for me, and probably for a lot of people, this conjures images of the rural poor in China, or the over-worked factory workers living in cramped dormitories like we sometimes see on the news (but, fortunately, never at Randy's company, which is still American-owned). However, there is more to it than that, and all I have to do is look around my garden.
I've blogged about our neighborhood many times, and I've said that our neighbors could easily be described as upper-middle class, maybe even rich, by Chinese (and possibly American) standards. The selling price of finished apartments in our garden is in the RMB 1.5-4 million (US$220,000-600,000) range. While this is a considerable investment (even in the US I wouldn't dream of even just looking at a house in this price range), where the rest of their money goes....well, it isn't into the types of things we Americans would see as essential in a $220,000 home.
Twice this year we have looked at dozens of apartments in this garden and we were amazed at how the apartments were not equipped. Few were the ones that had hot water anywhere but in the shower. In our current apartment, every time I wash dishes or need to wash a load of laundry in anything but cold water, I have to put the kettle on the stove and boil water. Most of my neighbors do not own dryers, preferring instead to hang their laundry out than spend the money on the appliance and waste the money on the electricity. I was tsked-tsked by our current landlord because my electric bill last month was an excessive and wasteful RMB 1006 (US$146). He couldn't believe how much we run our air conditioners and our dryer. We pay the electric bill, but he couldn't help himself in expressing his amazement at our wastefulness. While I'm on the topic of laundry, at least one apartment we toured didn't even have hook-ups for a wash machine. The owners and their tenants, or more likely their maid, hand-washed their clothes in a sink. There was still on the sink the bars of Tide that are still all-so-common in the grocery stores. Can any American imagine being able to afford a $220,000 house and not even spend the money on a decent washer and dryer?
Most apartments we've seen don't have heat (not absolutely essential in South China, but this past winter we really needed it), some don't have A/C (have I mentioned that it is usually over 30 degrees C here from April until Novembr?). None have dishwashers (though back in Shekou where the foreigners live it is more common). Some even don't have much in the way of refridgerators.
Additionally, can any American imagine paying $220,000 for a home and not be able to drink the water coming out of the tap? Ever? Having a plumbing system that constantly backs up, unable to handle the population, and causes our bathrooms constantly to smell like......well, other people's bathrooms?
Certainly, if we were to buy an apartment in our garden, our $220,000 dollars (plus monthly management fees) would buy us safe and beautifully maintained grounds, and two gorgeous, resort-like pools, and a location very convenient to such things as interest our neighbors. For what is available, the sale prices in our garden are really quite a deal. Most other gardens similarly equipped from a grounds standpoint are full of RMB 5-7,000,000 or even more apartments and villas.
However, it isn't that our Chinese neighbors can't afford these "luxuries" of hot sink water or dryers, or at least as we understand afford. In the US we frequently calculate affordability based upon our monthly payment--house payment, car payments, Lowe's Credit Card payment, etc. Here in China, it is certainly another story. Credit isn't as loose here, and in the absence of any type of fixed-rate financing, many people I know who have bought apartments are in a hurry to get them paid off before they try to make any other major purchases, like cars. But a lot of people consider "wasteful" the very things we would consider essential. And we rely on their not owning these things so that we in the US can. For now.
Comments
Thanks for sharing,
KP