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 with its southern counterpart, I started to wonder what a one-to-one dollar-Yuan ratio would mean for prices here. The more 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 almost any currency. Other things that would be reasonably priced, were they priced in dollars include bicycles (200), fried noodles (5), a very modest 2-bedroom Beijing apartment (2000), and knockoff DVDs (7).

Think about that for a minute: if you increased some 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 will cost you about 150. Unbelievably, movie 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 completely 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. And it is not 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 charge such different rates is that people living in the expensive ones would never be willing 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 income disparity is the idea among Chinese that if you have money, everyone should know. Why would you live in a shabby building for a few years if you are making good money? People might think that you are unsuccessful. It is not enough to have the money, it is important to flash it as 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, or Euros, and few go abroad even today (although many more than in the past). Clearly for exporters a rising Yuan is not a good thing, but 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 spend 60 dollars on a cocktail? It would be a brilliant way to reduce the value of the American debt the Chinese government holds, however.