Are Chinese Megacities Really Pricier Than New York or London?

Recently, media reports have focused on China’s “soaring” living costs, which presumably are encouraging expats to leave. Realities are more subtle.  

According to popular surveys, such as those by Mercer and the Economist (EIU), Beijing and Shanghai are pricier than New York and London, while Hong Kong is even more costly.

EIU actually places Beijing and Shanghai ahead of leading world financial centers, like London and New York.

I divide my time between New York City, which serves as the base city for most rankings, and Shanghai, which is occasionally used as a benchmark for emerging megacities, along with other cities. In this view, these findings seem to fly against common sense.

Beware of groceries

Recently, South China Morning Post reported that high living costs are reflected in the soaring price of groceries. A few examples: while bread (500g) in Hong Kong is said to cost $1.11, it is $1.28 in London, but $1.74 in Beijing. And yet, it is not that difficult to find the same bread for $1 in Shanghai. Of course, the prices are significantly higher if you prefer costly foreign brands – and many expats do.

What about imported products? Well, if you like Starbucks coffee, those beans (250g) go for just $6.39 in London, $10.32 in Hong Kong, but an amazing $13.55 in Beijing. While I may be a cappuccino addict, most Chinese aren’t.

Besides, Starbucks attracts primarily 20-40 year-olds who are willing to pay almost $4 for a cap that here easily compares with a nice meal. If you want to do the same with $4 in New York City, I wish you the best –you will easily need $20.

Perhaps you do pay $8.90 for imported wine in Hong Kong (Australian Shiraz, 2011), and $12 in London (Jacob’s Creek Shiraz Cabernet), and a whopping $30.15 (Chateau Lagrange, 2007) in Beijing. However, Chateau Lagrange isn’t a Shiraz. Further, there are tax differentials. Hong Kong removed all wine duties in February 2008. In China, wine import tax (customs duty, value-added tax, consumption tax) adds up to over 40%.

If one takes a closer look at these price comparisons, which are based on mid-range supermarkets, many high prices seem to stem from brand and luxury premiums, imported products, and misguided comparisons.

Tale of two price levels

Another way to explore the differences of purchasing power around the globe is the annual “Prices and earnings” survey by UBS, which is based on price levels, including rent with New York City as a base case (=100).

In this view, the price levels are the highest in Oslo, Zurich, Tokyo, and New York (100-104.5). London, Frankfurt, and Paris are significantly lower (83-77), along with Hong Kong (75).

In contrast, the price levels in the Chinese megacities are about half of those in Tokyo and the New York City (Beijing 52, Shanghai 50, respectively).

That seems more in line with realities.

In New York City, it is hard to find a small studio (one apartment unit) rental for less than $2,000 per month. In Shanghai, that may compare with a budget/average rental of an apartment plus 2 bedrooms in Downtown Jing An, Xu Hui or Lu Wan, according to real estate reps.

If price levels are not as high in relative terms, what is driving the expat debate?

What about the motives?

According to Western media, expats have been leaving China because of politics, pollution, and food safety, among other things.

China’s political system remains different from those in the West. Pollution is an acknowledged nationwide problem. And there are too many examples of gross laxness in food safety.

But let’s be real. Chinese politics has changed dramatically in the past two decades. Pollution problems are taken more seriously than ever before. And proactive municipalities seek to enforce food safety standards.

True, challenges are significant, but things are today better than they were a decade or two ago, when expats first arrived in China.

Instead of China, however, what may be changing is the status of the expats in the Chinese society.

“It’s the competition, stupid”

Today the work forces of the multinational corporations are increasingly localized. Salaries that once used to be the perks for the expats only are gradually becoming the standard for ordinary Chinese – as it should be.

At the same time, China’s coastal megacities are catching up, which translates to increasing competition between expats and locals.

In the past, it was not always merit and achievement that brought expats to Beijing, Shanghai, Guangzhou and other megacities, but a highly beneficial exchange rate difference, and a sense of adventure, the ability to make money, or the willingness to make a difference.

Expats have played a vital role in China’s development. As China seeks to go higher in the value-added chain, foreign expertise will be even more important. However, the old expat privileges are gradually fading as performance counts more than background.

Some expats may be leaving after negative experiences in China and still others because they miss the benefits and royal treatment that they once used to get.

Most expats are grateful to both contribute to and participate in China’s growth. And to many, an extended stay can be exciting, invigorating and even give purpose to life.

A shorter version was published by Shanghai Daily on December 13, 2012

2 Responses to "Are Chinese Megacities Really Pricier Than New York or London?"

  1. Philip   December 19, 2012 at 2:17 am

    Mercer and EIU studies are used to compare the costs of putting an expat in the city in question, so the focus on foreign (mainly western products) is appropriate, along with the international schools and living accommodation. Of course one can always find cheaper ways to do the same thing after a while but that is really not the focus of the survey which is meant for the HR departments of large multinationals that move expats around the globe needing updated costs for the expat postings

  2. Tom   December 31, 2012 at 1:47 am

    Philip nailed it, and another point: in countries like China, there are often quite small and thus quite exorbitant supplies of elite apartments that multinationals would find suitable for their posted execs.