Leading independent econ thinktank finds the gap between China and developed countries across various consumption sectors is significantly narrower when measured by actual consumption volumes.
This is an excellent study of comparative consumption levels between China and other countries. Rather than do the comparison in financial terms (even adjusted for exchange rate differentials) this study addresses the material measures themselves - calories, square metres, number of units etc. The results suggest that on financial measures China’s household consumption patterns and volumes are chronically underestimated and this further suggests that China’s real GDP has also been significantly under-estimated. It finally says something about relative low prices of goods and services in China. This is a vitally important intervention in a global debate about China’s consumption levels, suggesting strongly that western missives are simply off the mark.
I have a few questions / comments if you have time.
1: is the floor space per capita adjusted for vacancy (bc my understanding is that many apartments in China are vacant - perhaps as many as 20%, which is much higher than in the rich OECD world) and if vacant they do not really contribute to consumption now (they may later) and so a straightforward comparison of total living space is deceptive.
2: about 2/3 US homes have whole of house AC - “central air” - as do many apartments, so they are not buying individual units. My impression is that central air is not anywhere near as prevalent in China (or Europe for that matter) but this means using AC units is not an apples to apples comparison for the US.
3: if as you conclude the RMB is very much undervalued and at the same time Chinese households have high levels of physical consumption, then much as “Don” says the level of overcapacity is even higher than the usual calculations (the ones you contest) suggest.olds. Or 2 Which means 1 of 2 things: 1: either an undervalued RMB -> lower consumption than would otherwise be possible (more tourism, etc) so that the main criticism about Chinese consumption still holds and/or 2: if the RMB ever revalues to its ‘true’ level, export firms will have a massive shock to profits akin to the 1980s Japanese “endaka”
It is dubious to suggest that the real flows of production of these classes of goods simply overrule the estimates general price level.
Demand and consumption for each good does not simply linearly scale with overall real consumption. Demand for food is maximized at levels far beneath the levels at which overall real consumption would proportionately scale at, and accordingly consumption for food falls as a share of income. This occurs across multiple categories of good.
The mix of the consumption basket changes. Consumption shifts from goods that allow survival to discretionary services which provide comfort or which allow users to produce a social signal.
This is true even within a class of good or service, such as automobiles, phones or televisions.
Simple bilateral comparisons of overall PPP expenditures on consumption and specific classes of goods, between China and Mexico / China and Japan, do not indicate whether PPP is incorrectly estimated.
Meaningful evidence would be constitued by a systematic deviation in the ratios of PPP estimated consumption to production of items, based on the general relationship estimated from a number of different countries.
It sounds like sour grapes. When the West controls the means of production, it's called excellence while China's freedom from this oppression is called overcapacity. It's the failure of the West’s cheap labor dependent economic system. The strength of a country’s economy is derived from energy not population/labor. The low prices in China prove this. The rise of robotics in China proves this. China focuses on society while the West focuses on the individual. China is the turtle while the West is the rabbit. The system matters more than the parts. The parts are useless without the system.
This is an excellent study of comparative consumption levels between China and other countries. Rather than do the comparison in financial terms (even adjusted for exchange rate differentials) this study addresses the material measures themselves - calories, square metres, number of units etc. The results suggest that on financial measures China’s household consumption patterns and volumes are chronically underestimated and this further suggests that China’s real GDP has also been significantly under-estimated. It finally says something about relative low prices of goods and services in China. This is a vitally important intervention in a global debate about China’s consumption levels, suggesting strongly that western missives are simply off the mark.
I have a few questions / comments if you have time.
1: is the floor space per capita adjusted for vacancy (bc my understanding is that many apartments in China are vacant - perhaps as many as 20%, which is much higher than in the rich OECD world) and if vacant they do not really contribute to consumption now (they may later) and so a straightforward comparison of total living space is deceptive.
2: about 2/3 US homes have whole of house AC - “central air” - as do many apartments, so they are not buying individual units. My impression is that central air is not anywhere near as prevalent in China (or Europe for that matter) but this means using AC units is not an apples to apples comparison for the US.
3: if as you conclude the RMB is very much undervalued and at the same time Chinese households have high levels of physical consumption, then much as “Don” says the level of overcapacity is even higher than the usual calculations (the ones you contest) suggest.olds. Or 2 Which means 1 of 2 things: 1: either an undervalued RMB -> lower consumption than would otherwise be possible (more tourism, etc) so that the main criticism about Chinese consumption still holds and/or 2: if the RMB ever revalues to its ‘true’ level, export firms will have a massive shock to profits akin to the 1980s Japanese “endaka”
It is dubious to suggest that the real flows of production of these classes of goods simply overrule the estimates general price level.
Demand and consumption for each good does not simply linearly scale with overall real consumption. Demand for food is maximized at levels far beneath the levels at which overall real consumption would proportionately scale at, and accordingly consumption for food falls as a share of income. This occurs across multiple categories of good.
The mix of the consumption basket changes. Consumption shifts from goods that allow survival to discretionary services which provide comfort or which allow users to produce a social signal.
This is true even within a class of good or service, such as automobiles, phones or televisions.
Simple bilateral comparisons of overall PPP expenditures on consumption and specific classes of goods, between China and Mexico / China and Japan, do not indicate whether PPP is incorrectly estimated.
Meaningful evidence would be constitued by a systematic deviation in the ratios of PPP estimated consumption to production of items, based on the general relationship estimated from a number of different countries.
probabaly the strongest case for overcapacity one could make
It sounds like sour grapes. When the West controls the means of production, it's called excellence while China's freedom from this oppression is called overcapacity. It's the failure of the West’s cheap labor dependent economic system. The strength of a country’s economy is derived from energy not population/labor. The low prices in China prove this. The rise of robotics in China proves this. China focuses on society while the West focuses on the individual. China is the turtle while the West is the rabbit. The system matters more than the parts. The parts are useless without the system.
probabaly the strongest case for overcapacity one could make