BEIJING — Over the last 20 years, Chinese revolutions in manufacturing and technology have resulted in a skyrocketing national income per capita. Today’s levels are now 15 times that of 1995 and over 35 times that of 1980, according to the World Bank.
This trend is set to continue. According to a comprehensive report by PwC, China’s GDP is set to overtake that of the U.S. by the year 2026, cementing itself as the largest economy in the world. While this development is inherently good for the nation as a whole, China’s people will experience a tangible shift in their cost of living.
The cost of living in China right now is very low. This is due mainly to the fact that food and transportation are still relatively inexpensive throughout the country since, until recently, the average national income has historically been low. According to numbers gathered by Numbeo, the cost of living in China is 40.85 percent lower than in the U.S; this number excludes rent, which is on average 55.87 percent lower than in the U.S.
For example, a pound of white rice that normally sells for $1.75 in the U.S. costs only 43 cents in China. Meanwhile, a loaf of white bread selling in the U.S. for $2.31 only costs $1.28 in China. Similarly, a monthly pass to public transportation in the U.S. costs $66.00 while the respective price in China is only $17.63.
For the 44.4 percent of China’s population that lives in rural areas, these lower prices are a necessity if their demographically lower incomes are going to be enough to be self-sustaining. As China’s economic prosperity develops, however, the country’s urban mindset is beginning to transition toward a more consumeristic tendency.
Families and individuals who were once spending on a budget are now experiencing the financial freedom that comes with a countrywide, general increase in wages. While the relatively low prices of basic needs remain stable, increases in income automatically result in more spending on luxury items and services.
Western enterprises are seeing this shift firsthand. American companies such as Apple and General Motors are experiencing significant increases in revenue within China, and they expect these trends to continue in the years to come as the Chinese middle class grows at a significant rate.
The country’s consumers are therefore in a unique position, as the market forces that determine the cost of living in China allow for unprecedented upward mobility into the middle class. The question that remains pertinent, however, is whether or not these progressions will continue.
As Chinese incomes continue to rise and foreign retail companies forge ahead into what is still considered by many an untapped Chinese market, the possibility that the prices of basic needs could inflate to take advantage of the populace’s increased purchasing power remains. This wouldn’t be too jarring for China’s urban population. For the other half of the country, however, such increases in the cost of living in China would have serious and immediate effects on not only the poor’s livelihoods, but their chances to advance into the middle class as well.
It will be interesting to see whether or not inflation will have tangible effects on China’s domestic development over the coming years. If the country can address economic worries and prioritize the social mobility of the poor, they could have the largest and most powerful middle class the world has ever seen.
– John Mirandette