Email of the day
Comment of the Day

July 22 2011

Commentary by Eoin Treacy

Email of the day

from a subscriber on returning to China after three years:
"I just came back from China after spending four weeks visiting family in Nanjing, Beijing and Shanghai. Since my last visit three years ago, the country seems to continue to leap forward in economic development. The infrastructure building, especially the transportation system, is impressive. I took the bullet train to visit my parents in Beijing from Nanjing. The high speed railway connecting Shanghai and Beijing was just put into operation on July 1. At a speed of 300 km per hour, it took less than 5 hours to travel from Shanghai, the economic center to Beijing, the capital city. (1300km in total) Standing in the brand new flashy Nanjing South Station (the biggest railway station in Asia as I was told), as I looked at the huge bulletin board, almost every ten minutes there is a train coming, just like the buses. This is really an Oh-My-God moment! The one-way ticket costs 445 RMB ($68) which is about the same as an airline ticket after the airlines took a big discount (40% to 60%). Clearly the railway is a serious competitor to the airlines.

"Another impression is the surging purchasing power of a vast middle class and a small but rapidly rising high net worth class. More than once I ran into tourism agencies passing out tour program brochures on the street. In the local newspapers, there are large sections of advertisements for both domestic and foreign tours. In all major parks, you would run into tour groups from all corners of China. Chinese tourism is clearly booming.

"Talking to my old friends from high school and college, they are all doing well and some are doing extremely well. One made 30 million dollars after he took his company public on NASDAQ. Another made his fortune in the wave of privatization several years ago. He bought a state owned factory cheaply on borrowed money then liquidated the factory and converted it into a real estate project.

"More than one of them have a second child and two of them are expecting their third child. In China, if you don't work for the government and if you can pay the fine (about $30,000 per child), the one-child policy can be wavered. Another trendy thing for the rich and upper middle class is to send their child to the West for college education and even for high school. As I cashed my traveler's check at a local branch of Bank of China, I saw they have an overseas education financial service center in their office. A woman who was next to me in the line told me she is converting RMB to Euro to send her son to college in Europe.

"Even for ordinary middle class, the rise in living standard is impressive. My in-laws are just average provincial government civil servants. They own their apartment, have no debt, have one car, and spend their vacation in Hong Kong, use iPhone and iPad. Compared to the western middle class who still needs to go through the painful de-leveraging, the Chinese middle class has a clean balance sheet and can leverage up easily.

"Of course the gap between the haves and have-nots is huge. Today's young people are especially squeezed. They have to pay for an expensive higher education. As they graduate, they face a very competitive job market. When they want to get married they find they are priced out of the housing market. I guess the challenge the young Chinese gradates facing are not so much different as young people in Europe are facing. The only viable solution is to grow the economy fast enough so there can be opportunities for everyone."

Eoin Treacy's view Thank you for these invaluable insights contributed in the spirit of Empowerment Through Knowledge.

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