I got a mini kicking from one of my colleagues a fortnight ago for making observations about the Spanish economy based mainly on what I had seen. But my confidence in my ability to make sound economic observations was revived when my rough guess that Beijing’s GDP per capita was about the same as Singapore’s had been twenty years ago (see the blog for two days ago) seemed to be backed up by the numbers once I had bothered to do the calculations to test my intuition.
Figure 1 Singapore’s historical GDP per capita at PPP values Source Trading Economics
China’s PPP GDP per capita is currently about $17,000 (Cebr estimate) compared with about $50,000 for Singapore 20 years ago (See Fig 1 above). But there is huge regional income inequality in China as a recent study from the St Louis Fed suggests.
Figure 2 China’s regional income disparities.
The St Louis Fed analysis shows that household incomes in Beijing are about 2.2 times the Chinese average[1] so using the ratio of household incomes to scale up GDP, it suggests that for the whole of Beijing GDP per capita is $37,000. OK not quite $50K but in the same ballpark and, bearing in mind that I am currently only looking at central Beijing where the incomes are no doubt higher than the average, probably a pretty good observation.
Ianthe asked me how I could possibly judge GDP per capita simply by looking around a bit. And actually I was stumped when she asked because it has become instinctive. So I am trying to work out my process for judging the prosperity of an economy. This is my attempt to explain (to myself as much as to anyone else):
The first thing I look at is people in menial jobs. In really poor countries these people’s bodies are emaciated to the point where I can hardly bear to look at them, their bodies damaged by years of malnutrition. If people doing jobs like hotel cleaner, road sweeper, watchman and so on are looking well fed and clearly have been for a while, it is likely that the economy is doing reasonably well. Labour markets at the bottom end in emerging economies are fairly competitive and if people doing relatively unskilled jobs earn enough to eat well, it suggests that they have moved some way up the income scale. It is unlikely that the people doing the jobs that I notice will be paid very differently from those doing similarly skilled jobs elsewhere in the same travel to work area. Employers will not deliberately overpay their labour force. On that basis China left the bottom rung of the ladder about quarter of a century ago.
Next I look at clothing, again focussing most on the poorest people. If they are wearing rags it tells one story. If they have newish clean clothes, it tells another since they must have a number of changes of clothes for any set to be clean. Clothing comes after food in most countries (though not all). Again China has clearly climbed up past the stage of dirty ragged clothing and even largely passed the polyester stage.
If people doing menial jobs are doing reasonably well, it is likely that those in better jobs are doing better and it becomes possible to make some kind of a guess as to how well the whole economy is doing.
Then I look at the shops. If the shops are filled up with stock, this suggests that there is a vibrant consumer economy. The biggest cost to retailers is inventory so they can only afford to fill shelves if items are moving quickly. Beijing shops are not that different from those in the west, but remind me more of those in Singapore in the 1990s which was the main basis of my observation about GDP.
Then I look at the types of things that people are buying. There is a whole hierarchy of purchases as people move from poor to rich. These days the next purchases after food and clothes tend to be consumer electronics. So it is interesting to see how widespread these are. And other consumer items and what sort of luxuries can be afforded on a widespread basis.
As someone who knows cars reasonably well, I obviously look closely at what cars, bike, motorbikes and scooters are on the road, the types and how new they are. Mike observed on Sunday how much newer the cars on Beijing roads are now than those he had seen when he was last in Beijing 4 years ago.
China holds the world record for the longest ever traffic jam of 12 days[2] (as I cheerfully reminded Ianthe, Rowena and Mike when we were stuck in a jam coming from the airport on Sunday) suggesting that people are owning cars to a greater extent than the authorities had predicted…..
Next I look at the public infrastructure, its quality, its newness and the quality of upkeep, particularly the latter. Though sometimes in police states the infrastructure is looked after better than the level of economic performance would suggest, there is normally some kind of relationship between infrastructure and prosperity.
Finally I normally look at property prices and quality. There are two elements to property prices, supply and demand and one needs to understand both. The US is much richer than the UK yet UK property prices are mainly higher, partly because of supply side factors like lack of land and planning.
The average selling price for second hand homes in Beijing in February 2019 was 59,898 yuan (US$ 8,920) per square meter[3], down 11.3% from the level seen in March 2017. Beijing prices are about the same as in Amsterdam but twice those in Kuala Lumpur.
Because of the way Chinese money is invested in property which distorts prices, on this occasion I have ignored Beijing property prices as a guide to standards of living.
I have the good fortune to be able to remember what Malaysia and Singapore were like as their incomes grew from $3-4K in modern PPP GDP per capita terms in the 1950s to Singapore’s current level of $86K. What is interesting is that the rules I use seem to work well while a country is moving from $3K PPP GDP to about $30K. It is much harder to see the difference between $30K and $80K using these techniques! But my experience from the Far East gives me a pretty good base to calibrate movements of GDP per capita as countries move up the lower reaches of the income scale.
All this tells me that China (or at least Beijing) is still doing well though there are hints of difficulties on the horizon, as the falling property prices suggest.
[1] https://www.stlouisfed.org/on-the-economy/2018/january/income-living-standards-china
[2] https://www.autoevolution.com/news/the-longest-traffic-jam-in-history-12-days-62-mile-long-47237.html
[3] https://www.asiatimes.com/2019/03/article/beijing-home-prices-fall-10-over-two-years/
Ianthe has just come back from the Great Wall. Terrible traffic jams on the No 3 Ring Road to get there but she, Rowena and Mike really enjoyed having a chance to walk on this amazing monument.
Figure 3 Ianthe tobogganing down from the Great Wall
They also tobogganed down which they appear to have enjoyed, providing photographic evidence!
They saw the Birds Nest on the way out which they had really wanted to see. So they seem to have had a good day. I’ve been resting my back which is feeling much better.
Rally fever is building up in the hotel. More and more people are joining in and all seem very friendly.
Tomorrow we will receive a stern lecture on driving in China from the Beijing Chief of Police. Obviously we will all behave ourselves!
