China Translated

In my last post on pig production and inflation I argued that though pork prices do have a big effect on China’s consumer price index, the underlying cause of inflation is not too few pigs but rather too much money.  But that does not mean that food prices are not important.

I think this extract from a story called ‘Pounds, Ounces, Meat’ by Zhu Wen, is an interesting illustration of the importance of food prices in Chinese life.  I read the story in translation and I believe the original was written in the mid 1990s, but having visited a few Chinese vegetable markets, I can attest that Zhu’s account still rings true today.

The story takes place in a vegetable market.  An old lady whose newly purchased tomato has just been crushed by another shopper is demanding compensation:

‘The old lady said she had bought 6 tomatoes, costing 2.5 yuan altogether, making each tomato 0.41666 yuan on average.  Rounding it up, he owed her 0.42 yuan.  After a brief stunned pause, the man demanded to see the other 5.  The old lady brought over the basket from the ground and, one by one, rummaged out the tomatoes from in amongst the potatoes, cauliflower, asparagus, lettuce, ginger, onions, long chillies, and pickled garlic.  I disagree, the man pronounced after thorough investigation, these 5 are all quite big, but the one I squashed was obviously much smaller.

The old lady glared upon her adversary, suddenly realizing he was not yet a spent force.  Well, what do you say?  The man pulled out from his bicycle trailer a carrot and laid it in front of the old lady: Look, I bought 4 carrots, 625 grams altogether.  At 2.4 yuan a kilo, they cost me 1.5 yuan which makes each carrot 0.375 yuan on average, but because this one is the thickest and the longest, it’s bound to be worth more than 0.42 yuan.  Take this and we are even.

The old lady closed her eyes a while, out of habit, then grabbed the hostage carrot and tucked it into her own basket.  But take it from me, she added as an afterword, though the current official price for carrots is 2.4 yuan, you can sometimes get them down to 2.3.  As I’m running late and I’ve got to get home to cook for my children, I’ll leave it here for today.’

Zhu’s underlying point is that reform era China is obsessed with money and material things.  In one of his other short stories, entitled ‘I love dollars’, a young man bargains his father out of a good time by refusing to pay the going rate for a prostitute.  But even though Zhu is using the old woman’s haggling to illustrate a wider point, a visit to any food market in Beijing would be enough to indicate that his fictional account is not too far from reality.

Food makes up around a third of the average Chinese person’s consumption basket, and with incomes low, even small changes in food prices can mean the difference between keeping your head above water, or going under.

Agriculture, Culture, Monetary Policy, Retail

I just got back from a few days in Yangshou, or more precisely from a small village just outside Yangshou - an area famous for its spectacular karst scenery.

The village was very rural, everyone was employed in either agriculture or tourism.  Water buffaloes abounded, chickens clucked, hills like jagged teeth jutted out, their tops wreathed in mist.

Yangshou itself has a population of about 50,000 clustered around what looks like a thriving high street.  Young men hang around busy corners plying their trade as motor-bike taxis, electric cars wait by the river for tourists to arrive from nearby Guilin on bamboo rafts.  An enormous billboard reminds the citizens of the importance of diligently following the precepts of scientific development.

GDP per capita in Guangxi province is just under CNY15,000 (2008 data), and I would guess that GDP per capita in Yangshou is slightly lower.  But that didn’t mean there wasn’t what looked like a thriving retail sector.

I was especially struck by the proliferation of low end sports brands.  Everyone knows the story about Li Ning, the Olympic gold medalist Chinese gymnast who is taking on Nike and Adidas.  Li Ning is a reputable brand in China, but foreign observers would immediately notice that its tag line ‘anything is possible’ sounds suspiciously similar to Adidas ‘impossible is nothing’ and that the Li Ning swoosh looks suspiciously like the Nike swoosh.

In Yangshou, Nike and Adidas are nowhere to be seen, but that doesn’t mean that Li Ning is getting a free ride.  Anta, another domestic brand, is jostling alongside Li Ning, and its swoosh also looks strangely familiar.  And where Li Ning is trying to shift its basic running shoe for north of CNY300, you can pick up a pair of respectable looking Anta running shoes for CNY150.

Neither is Anta the only pretender to Yangshou’s sportswear throne.  If you thought Li Ning was shameless in its play on the Adidas slogan, you’ll be shocked to learn that Adivon have gone one step further, with a blatant copy of the Adidas logo, colour scheme and name.  A pair of Adivon running shows will also set you back around CNY150 and they also had some rather cool leisure sneakers for CNY220.

The pretty young shop assistants in Adivon looked slightly embarrassed when asked about the relationship between Adivon and Adidas but said they were separate companies.  Anta’s shop assistants were happy to point us toward the rival Li Ning outlet, but as we reached the turn in the street, remembered their brand loyalty, shouting ‘Anta’s also a good buy.’

Nike and Adidas might have captured the sportswear market in first tie cities like Beijing and Shanghai, but further down the chain, it appears, it is all to play for.

Competition, Regional, Retail

I recently finished reading Beijing Doll, an autobiographical novel by teenage writing sensation Chun Sue.  The back cover says that Chun is ‘the voice of a new generation’ and that her novel will ‘take readers to the streets of Beijing, where a disaffected generation spurns tradition for lives of self expression, passion, and music.’

Chun clearly sees herself as a rebel and an idealist, rejecting the authority of school and parents, attempting to live up to her own personal set of ideals.  But for Chun and her friends, the path to freedom appears to end in the shopping mall.  Here’s a section of one of the final chapters:

‘I picked out a green notebook, and went to cruise the cosmetics counters whilst G paid for it.  There were lots of things I wanted to buy, some of newest nailpolish by ZA, green eyeliner pencil, perfumed powder, Red Earth white eyeliner pencil, coloured mascara, and L’Oreal liquid foundation, which was cheaper and moister than other brands, so you don’t have to wet your face before you put it on.  Then there were Revlon Colorstay lipsticks, since I was tired of using nothing but light colours on my lips; I might as well not use any lipstick at all in that case, and save the money.’

If she really is the voice of a new generation, it’s time to buy shares in cosmetics retailers.

Culture, Retail

2009 was an astonishing year for car sales in China.  A combination of reduced tax on low fuel consumption cars, and subsidies to rural dwellers to buy vehicles, resulted in a surge in purchases.  That surge played a key part in propping up domestic consumption.  In fact, if you net out spending on cars, consumption growth in 2009 looks pretty anemic.

How many cars will Chinese people buy in 2010?  A research note from China Galaxy Securities sets out some bullish predictions, this is my translation:

‘Increases in income will be the main reason why there is a strong increase in consumption of autos in 2010.  According to international experience, when average per capita GDP hits about $1000, a country will start to see households purchasing cars.  In 2001, when China’s per capita GDP passed the $1000 mark, households had already started to purchase cars.  The number of family cars purchases each year from 2003 -2007 was 1.78m, 2m, 2.93m, 4.11m, and 4.93m - around a 1m increase every year.   In 2008, per capita GDP passed the $3000 mark.  According to the normal progression, the number of family cars sold should have reached 6m.  But because of the financial crisis, only 5.5m were sold.

In 2009, according to the normal progression, 7m cars should have been sold, and in 2010 8m.  But because of subsidies to buy, and pent up demand from 2008, the number of cars sold in 2009 was 8.5m.  That means in 2009, 0.5m cars that should have been sold in 2008 were sold late, and 1m cars that should have been sold in 2010 were sold early.  Adding it up, we predict car sales in 2010 of 7m (the 8m that would normally have been sold, minus the 1m that were sold a year ahead of expectations).’

As someone who cycles around an increasingly gridlocked and gritty Beijing, I find the focus on increasing car ownership bizarre.  But with Chinese incomes continuing to rise, subsidies to car ownership remaining in place, and car ownership an importance symbol of status in a status orientated society, its difficult to see a change in the trend.

Here’s a link to Galaxy Securities website.

Retail