What if the RMB and Dollar were the Same…

Today the Renminbi broke the 7.5 barrier against the dollar. Given that the Canadian dollar recently reached parity beside its southern counterpart, I started to wonder what a one-to-one dollar-Yuan ratio would mean for prices here. The further that I thought about it, the more it because clear that there are a lot of things that would still be reasonably priced.

The obvious one, of course, is beer from the corner store. I pay 2 kuai, and 2 dollars for a big boy isn’t that unreasonable. Buses are typically 1 yuan, and that would be fair in circa any currency. Other effects that would be reasonably priced, were they priced in dollars include bicycles (200), fried noodles (5), a ideal modest 2-bedroom Beijing rental (2000), and knockoff DVDs (7).

Think about that for a minute: if you increased part prices by 750%, they still wouldn’t be outrageous. However, this argument hides the obvious fact that most things foreigners and rich Chinese buy are actually priced similarly to products abroad in real terms.Cocktails in a bar can easily run 60 RMB. Brunch would be about 100, and even a moderately upscale restaurant in Shanghai devise cost you about 150. Unbelievably, film tickets in China are often about 10 dollars US, an outrageous sum.

What does all this mean? The clear answer seems to be that Chinese live in a two exhaustively separate worlds. It is like the John Edwards’ two John Edwards’ campaign themes have merged (‘China is evil’ and ‘there are two Americas’). Prices vary so widely that it is almost impossible to imagine that they could coexist. Furthermore it is negative even by geographic location. Looking west from my apartment are 2-bedrooms going for the rock-bottom price of 1,500 RMB a month. To the north there is a complex that charges only slightly less than what you might pay in Brooklyn.

Incomes and lifestyles are so differentiated that people self-sort themselves. The reason that apartments next to one another can tab such different rates is that people living in the expensive ones would never be disposed to drop their living standards far enough to save the money . The same is true for restaurants, where the cheapest are also often the shadiest.

Beyond the wages disparity is the ideological among Chinese that if you endure money, everyone should know. Why would you live in a shabby building for a few years protasis you are making good money? People might think that you are unsuccessful. It is not competent to have the money, it is momentous to flash it therefore well. So, were parity to hit, only the richest foreigners would be able to keep up their lifestyles.

Of course, as the Renminbi appreciates, for most Chinese the impact is more subtle than it is for foreigners. Most Chinese do not earn their money in dollars, rather Euros, and few go abroad even today (although countless more than in the past). Clearly for exporters a rising Yuan is refusal a good thing, besides for most of the population it does mean that foreign goods are cheaper.As for Chinese goods, as long as inflation remains in check, consumers could care less what the dollar equivalent is.

For the foreigners, however, a one-to-one ratio would be a burden indeed. After all, who would want to fatigue 60 dollars on a cocktail? It would be a brilliant track to reduce the value of the American debt the Chinese government holds, however.