# "Calculating The Power Of Your Hard-Earned Yuan"

There is so much #win (not to be confused with #yuan) in the following article from today's edition of China Daily, that we just felt compelled to post it in its entirety for three reasons: i) an article like this will never appear in the US press - here the best one could get is the calculation of the lack of power of one's easily borrowed Charmin'; ii) it contains the phrase: "There are no lies, just statistics" when discussing data released by the China's National Bureau of Statistics, iii) being on the front page of the paper, and addressing a topic near and dear to everyone: namely how much pay Chinese workers are receiving in absolute and relative terms, in an attempt to spin the data, it confirms what everyone knows - that more and more Chinese workers are getting antsy about the only number that matters: the bottom one. So without further ado, here is China Daily and "Calculating the power of your hard-earned yuan."

Calculating the power of your hard-earned yuan

Recent figures differ over average incomes of Chinese workers, and there's no easy answer to which is nearest the truth, Chen Xin reports.

What's the average wage in China and how does it compare with that in other countries? It seems a straightforward question, and the answer is always officially presented as such. But the answers will vary depending on the source and factors used in calculating the figures. There are no lies, just statistics. China's National Bureau of Statistics will tell you that the average monthly income in the country last year was about 2,000 yuan. That is for urban residents only. At the current exchange rate, that would be \$317.

According to the International Labour Organization - a United Nations body set up to "promote rights at work" and "encourage decent employment opportunities" a worker in China earns around 4,100 yuan a month on average.

Converted to US dollars, that is around \$656, more than twice what the Chinese bureau of statistics calculated for the nation's main wage earners. Does this mean Chinese workers are better off than they think they are?

Yes and no. First, the ILO estimates the average monthly wage throughout the entire working world is \$1,480. China's doesn't look too good set against that. But more important, all amounts are calculated on the basis of purchasing power parity.

PPP is the "currency conversion" device used by the ILO, and other bodies when comparing international incomes, rather than market exchange rates. Currency rates fluctuate and can be misleading when reflecting the standard of living in poorer countries.

In other words, the equivalent of 5 yuan won't buy you much in Western nations, but you can get a large bottle of good beer or a decent snack with it in China.

PPP, the purchasing power rate, is determined by how much money is needed to buy the same goods and services in different countries. If the same basket of goods is bought for \$100 in the US and 400 yuan in China, then the parity of the dollar to yuan is 1 to 4, as opposed to the current market exchange rate of 1 to 6.3.

Officially, according to Patrick Belser, a Geneva-based ILO economist, the Chinese worker who earns 1,500 yuan per month can be said to have a purchasing power of 2,520 yuan, or the equivalent of \$400 if he spent it in the US.

Unfortunately, the reality is the worker will not be spending it outside China, and the PPP does not take into account price rises within the country.

So how do workers regard the level of their income and its purchasing power, and what do economists and experts in labor studies think?

Although they have seen a steady increase in their wages in recent years, there has also been an accompanying rise in the cost of goods, with the consumer price index showing a year-on-year rise of 5.4 percent last year. More significantly, the cost of food rose by 11.8 percent in 2011.

"The price of everything is going up. Seven or eight years ago, 10 yuan could buy 5 kg of rice. Two years ago, the same amount of money could buy 2.5 kg. Now, it can only buy a few scallions," said Li Yinping, a Beijing resident.

Wu Xin, who works at an insurance company in Chongqing in Southwest China, and earns a little more than 3,000 yuan a month, also didn't think his purchasing power was as high as the ILO figures suggest.

"I have to buy cheaper clothes and cheaper versions of other necessary items in order to make ends meet," said the 26-year-old.

Zhang Yi, an expert in labor economics at the Chinese Academy of Social Sciences, says that the incomes of 60 to 70 percent of workers fall below the national average, because that average wage figure, whether calculated by the ILO or NBS, will be boosted by the much higher incomes of individuals who run their own businesses, and of company management.

"And low-wage earners would spend most of their money on food and medicine, which means the less they earn, the lower their purchasing power would be," he said.

Zhang said people felt that the 11.8 percent rise in food prices limited their purchasing power, and noted that PPP conversion does not take fluctuation of consumer prices into account.

This is reflected in the actual sales figures. The total retail sales of consumer goods grew by 11.6 percent in 2011, but this was the lowest rate of growth in the past six years, and a drop of 3.2 percent on 2010, according to the National Commercial Information Center.

The People's Daily reported that in 2011, retail sales of consumer goods amounted to 13,400 yuan per person, one-seventh the amount spent per capita in the US.

What's more, the goods and services purchased by households in China, calculated as part of GDP, had declined from 48.8 percent in 1978 to 35.3 percent by 2008, with the world average at about 60 percent.

Experts blame this partly on the massive increase in house prices.

Household spending

Despite China maintaining two-digit economic growth, the proportion of household income in GDP also declined in recent years. The ratio dropped from 53 percent in 1995 to 40 percent in 2007, according to Bai Chongen, associate dean of Tsinghua University's school of economics and management.

"Workers' pay is the most important source of residents' disposable income and the declining ratio of household income in GDP would affect spending," he told a recent forum.

Perhaps more significantly, the widening income gap between different groups of wage earners has also curbed overall spending.

The average income in the sectors with the highest-paid workers is about seven times higher than that of those with the least paid, said Yang Yiyong, director of the social development research institute under the National Development and Reform Commission.

In addition, official statistics show that in 2010, the average annual salary of a public sector worker was more than 37,000 yuan, while a worker in the private sector earned only 20,700 yuan.

And although the government has been increasing the minimum wage, an ILO report in 2009 found that more than 20 percent of local workers and about 40 percent of migrant workers in China were still underpaid.

Liu Junsheng, a researcher with the labor and wage institute under the Ministry of Human Resources and Social Security, said that official statistics of workers' average wages were only calculated from earnings in State-owned, overseas-funded and large private enterprises, while the income of workers in small and medium-sized enterprises (SMEs), which employ almost 70 percent of the total labor force, were not included.

The ILO recognizes these disparities, and it may be another reason why its figure for the average monthly wage differs so much from that of China's National Bureau of Statistics.

"The official figures do not reflect real wages of the majority of workers because they are not covered by the calculation, and that's why many people would feel that both their wages and purchasing power have been overestimated," Liu said.

Insecure living

Wu Fei works at a perfume design company in Beijing and earns more than 5,000 yuan a month an above-average income by either calculation.

Wu said he spends 1,100 yuan a month on renting an apartment, which he shares with two other people, about 1,500 yuan on food, and another 500 yuan on telephone, transport, and water and electricity bills.

"I can live on that income, but the disposable part, what's left to spend, is less than 2,000 yuan. I don't feel very secure with that because I wouldn't know how to deal with a sudden sickness or other emergencies with such a small sum of money," he said.

Wu said he is considering finding part-time jobs to make more money. But how much would be enough to feel secure?

An online forum has attracted calculations and suggestions recently from around the country. The site posted a list of baseline wages that would satisfy people in 2012 in different cities. In Beijing, the bottom line would be 8,550 yuan a month while in Shanghai they're looking to earn at least 9,250 yuan.

According to the statistics authorities in these cities, the average monthly salary of workers in Beijing in 2011 was 4,672 yuan and in Shanghai, 4,331 yuan.

Closing the gap

Liu Junsheng suggests several ways in which the gap between the low and high income groups can be reduced and the income of low earners raised to a more secure level.

"Workers in monopoly industries should have their wages raised at a much slower rate," he said. "And the monopoly in some of those industries should be broken to get rid of the conditions and environment that encourage big wage increases for high-ranking employees."

Liu added that the government's fiscal policies should favor SMEs more to help them increase profits, so they can afford to raise their workers' salaries.

The transfer of labor-intensive industries from coastal regions to western areas and the further development of industries in advanced areas should be carried out promptly, as this would help increase workers' pay, he said.

Experts also highlight the importance of collective negotiations between employers and workers to achieve steadier and fairer wage increases.

A recent industrial collective contract will give more than 100,000 software workers in Dalian, Liaoning province, a pay rise of at least 6 percent this year. Another contract will mean an 18 percent increase this year for 11,600 working for sports appliance manufacturers in Yangzhou, Jiangsu province.

For its part, the central government has pledged in its 12th Five-Year Plan (2011-15) that incomes will "keep pace with economic growth" and wages will "increase in line with improvements of productivity".

Delivering the government work report in March, Premier Wen Jiabao said the government is to set up a mechanism for scheduling income increases and to raise the minimum wage by at least 13 percent a year, in order to curb the widening income gap.

Wen also promised more effective adjustments to taxation to balance the incomes of different social strata. He said the government will strictly regulate the income of senior managerial staff at State-owned enterprises and financial institutions, and raise the income of low earners.

If successful, the plan will create a much larger middle-income group and narrow the gap in wealth generally. It will also be interesting to see if the ILO rates the purchasing power of their hard-earned yuan stronger or weaker than it is today.

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an article like this will never appear in the US press

You know you're fucked when even China is more free than your country.

You could drink that 5 RMB bottle of good beer in the streets in Shanghai.... ah, the liberty..  and walk into the Shanghai stock exchange with jeans and a t-shirt and walk right into the elevator with barely a look from the security guard.  I know it because I was there doing just that in 2008.

Come back to NYC and I felt ...

Who would be interested?

The not to distant future if not present situation of America summed up perfectly

"Wu Fei works at a perfume design company in Beijing and earns more than 5,000 yuan a month an above-average income by either calculation. Wu said he spends 1,100 yuan a month on renting an apartment, which he shares with two other people, about 1,500 yuan on food, and another 500 yuan on telephone, transport, and water and electricity bills."

Ok so Wu has 38% of her income available for discretionary spending, far more than most middle class Americans. 22% goes towards an apartment, 10% to utilities, and 30% to food. I didn't see taxes in the article and it says he earns more than 5000 yuan, so I'll take 5,000 yuan as take home. Annual medical care is only 50 yuan for a Chinese worker so it isn't even worth counting.

An above average equivalent job in the US pays \$35k if you're lucky. My cousin makes \$38k working to design packages in NYC so I'll use him to compare with Wu. His take home after taxes and health insurance is about \$25k. Rent in a major city like NY is \$3000 a month averaged, he pays \$1200 towards rent with two other guys, or 57% of his monthly income. \$600 on food a month is average, 28% of income. \$150 is probably right for split utilities and phone, 7% of income. That only leaves 8% of his take home income for discretionary spending, about \$160 a month.

It looks like Wu pays just about the same as an American for food and utilities but makes out like a bandit on rent, at least in a major metro area. Where Wu creams an American is discretionary income. Maybe that's why the Chinese economy is growing and the American economy is collapsing.

The factory in China that I just got back from pays its workers 3500 yuan a month. Even at Wu's expenses that would leave any worker at that factory with 11% of their income for discretionary purchases.

Looks like an American is better off working in China, maybe that's where all the Mexicans are going.

Mind that you have to take into account that Chinese housing (specifically, their apartments) isn't really built to last beyond ~10 years.  In addition, it comes a lot more bare than the average US apartment.

The apartments I've been in in Beijing weren't much different than NYC except for the lady sitting in the elevator all day selling stuff. Some of the apartments I lived in US weren't built to last more than 20 years but they are still around since WWII and cost \$1300/month in Northern NJ for 1 bedroom , hear all the neighbors, noisy window air conditioner.

In Sydney I live in a \$1700 a month one bedroom apartment above a shop and under the flight path, and train tracks, 6km from CBD. Bitch please.

Obviouslyyou never rented in Key West Florida, man that is a great deal you have in Sidney, not to mention NJ and NY and well, maybe China too.

If these lazy, entitlement minded socialist don't like their pay the multi-nationals can set up shop in central America. The problem with these lazy Chinese citizens is that they don't want to work for a living. /sarcasm.

"Annual medical care is only 50 yuan for a Chinese worker so it isn't even worth counting."

Maybe with (very generous) employer scheme - esp for govt employees. But I've been in Chinese hospitals. 90% of people are paying cash. (There are separate windows for the insured, and in some cases current/ex govt officials...)

Families need hefty collective savings in case someone has a mishap - that's the insurance. That's why consumption in China is unlikely to pick up sharply without fundamental reform of health/social security.

But the demographics will make this enormously expensive. & there are banks & SOEs to bail out, not to mention prestige projects (with huge potential for fund-siphoning) to build...

Catch-22.

Chinese consumption is not coming to save the world anytime soon (whatever Stephen Roach might think... Or say - because I'm not sure how anyone who's familiar with China can actually believe this.)

If any of these figures are accurate, why is it that house/condo prices in Chinese cities and even rural areas are about the same as the US? Clearly there is a lot of unreported income - much more than US. Also, how is it that they are able to send their kids to college and even private high schools in US?  How is it that they buy more cars than US? Who's buying all those iphones? Why are some Chinese-americans moving back for raises?

lets see you trying to tell me that 36% of the people who are employed as rice farmers are paying the same as a corn farmer in Nebraska for a house. get real.

I don't think they are allowed to buy farms. But after the government gives him \$300 for the land he's used to farming, the apartments they build on it cost the same. Most people got them for free or almost free when they switched to "Communism with Chinese characteristics" so it's just the marginal demand that makes the prices high. Prices in Beijing about the same as a US city if you don't get it free from your job or CP membership. My gf parent's house was supposed to be worth \$350,000 in a semi-urban area. Used to be a tea farming village. Looked about the same as my 1950's small ranch which costs the same in Northern NJ. She bought a stall - no roof or walls - just a stall on a street fro \$5,000 and sold it for \$15,000 a couple years later. Course you have to have CP connections just to get to buy it and you don't really own the land, it's a 99 year lease or some such which the government can abrogate at any time.

2 million Yuan for a house in the suburbs? 84 times earnings? over ten times the US housing bubble peak? I suspect something got lost in translation.

That's about right.  Just check Craig's List if you want confirmation.

Just opinion here. They may have their 1% ... Or 2% .. At 1.3 billion, 1% is 13 million.. .. Also, many are given scholarships here in the U.S. Even though it's not race decided.. Right. Cars, same, a bubble of loans may be forming with autos as here, and housing as was here..same here. Btw, have you seen any videos on utube how they drive?

There is no car bubble in China due to credit. 80% of the people buying GMs in China pay in ALL CASH. The rest are putting down 50% or close to it. Chinese people save.

One of the large pieces that people often fail to talk about is the role of state-owned insurance companies in China.  Where in the US, insurance companies make their money in hoping things fail, in China they take savings from people and re-invest in infrastructure and development projects that yield gains.

I was in a tier 3 city in Northeast China that excavates tons and tons of concrete.  You go around China and you see major development!  Roads, highways, trains, airport and railway terminals, bridges, tunnels.  It really is a thing of beauty.  Does it require vast resources?  yes of course!  Does it temporarily cause pollution?  No question.  Essentially, in the back of my mind, I believe China is trying to accomplish in 30 years what America did over the course of 70.  Once the infrastructure is in place, then is when the rest of the world really needs to be taking China seriously.  It's ok, we've got about 15 years left.

'Once the infrastructure is in place, then is when the rest of the world really needs to be taking China seriously.  It's ok, we've got about 15 years left. '

That is, if they don't have a revolution before that.

Ignorance much?  It is only the upper classes & successful entrepeneurs that can afford to send their kids abroad for education, a tiny % of Chinese.

I'll take Ayn Rand reality for two hundred, Alex.

Answer:  "China's National Bureau of Statistics will tell you that the average monthly income in the country last year was about 2,000 yuan. That is for urban residents only. At the current exchange rate, that would be \$317 [less than \$2/hour or \$16/day based on a 40 hour week]."

Ding, Ding:  What happens when the "productive class" gets to make the rules and there is virtually no regulation to protect the workers?

Correct!  Well played.

Your ignorance is showing.

China is the antithesis of of what Ayn Rand advocated. It is a centrally controlled economy with very little or no property rights, very little or no free trade and tons and tons of cental government intervention. They peg their currency for goodness sake. Do you know what that means? Do you know what inflation does to workers? Do you know where inflation comes from? Guessing this is all above your head but hopefully anyone else reading your nonsense will not be persuaded by your outright and utter stupidity.

At least attack her based on a shread of reality. That kind of attack really is just an exposition on how you can't even understand basic logic.

No, your ignorance is showing.  China is exactly what Ayn Rand's world looks like in practice.  The multinationals are there for a reason.  They have complete control.  They have property rights.  They get to do what they want with little government intervention.  The people are completely controlled.  The currency is pegged to keep exports cheap to benefit the oligarchs.  Wake up from your theory and look at reality.  Or do you think multinationals are there because they like "communists?"  Come on.

keep making stuff up. a pegged currency is not property rights again it is the exact opposite of property rights. did you read atlas shrugged you think Oren Boyle was a hero or James Taggart. You are a true idiot.

Get back to your miserable hate filled confused life. I will get back to being productive.

Just please don't jump on Oprah's couch and complain about psychiatrists.  One cult is enough, okay?  P.S.  Alan Greenspan was Ayn Rand's close friend and wrote a chapter of one of her books.  In practice, the philosophy works a bit different than on paper.  But don't worry your pretty head about such things.  Theory is so simple and non-challenging for the productive types like you, and it's best to ignore real world examples of what you espouse because those examples consistently prove you to be a complete idiot.

so were Oren Boyle and James Taggart hero's in her book? what role did they play? Have you read the book? simple questions, come on genius.

I read the book.  Even if I did not, I could google the answer in seconds.  So it would prove nothing for me to give you details.  What is truly amazing to me is that you see the book as some kind of Unholy Bible, and you challenge anyone who doubts the Word to prove that he's read it and knows the characters.  Truly pathetic.  Ayn Rand's philosophy is easily condensed into a few paragraphs.  She was a narcissist.  She celebrated smoking cigarettes because she smoked. She never owned a factory but she convinced complete morons that owning a factory is the definition of success and character.  She has no principles and she accepted government benefits when it was convenient for her.  Anyone who follows her has a serious flaw of character and intelligence.  Still want me to answer your idiotic question about characters in the book?

Objectivism is flaws since Ayn Rand's philosophy maintains the necessity of the state, however since it can be demonstrated that the state isn't necessary for anything she left the door open for the kind of corruption you see in the U.S. today. I prefer Rothbard, who came after and addressed a lot of the flaws in her philosophy. However, since the term "dyspeptic liberal" sums you up very nicely I have trouble imagining any state of existance in which you would be happy.

Objectivism is flaws.

Nicely said.  Ffart

how is a government controlled currency and printing of money equate to property rights? come on genius. Explain how that is property rights. I will get away from the "unholy bible" and ask a basic socio-economics question. Try googling that one.

your argument boils down to

Ad hominen blah blah adhominen blah blah ad hominen. This is getting boring. Would like you to provide something besides name calling.

Also wouldnt mind hearing your thoughts on Oren Boyle and James Taggart. I am sure they will be insightful.

Ironic you mention google since their results were filtered causing them to threaten to leave. Multinational doing whatever they want??? Property rights but they cant control the content they deliver to the people and the people cant control what they see?

You called me an idiot first, idiot.

this article is pure BS because we all know from cnbc that everyone in china is going to buy an iphone this year....!

"Annual medical care is only 50 yuan for a Chinese worker..."

Don't think so... you can't get decent care in China unless you go to a private doctor/hospital which is a lot more expensive than 50 RMB.

The catch is oil and other resources.

Once again these statistics are pure nonesense.

The reality in China is that when workers are paid, tax is paid on their salary but not bonuses so bonuses are a big part of the salary. During Chinese New Year an additional months salary is paid as a bonus. Add to that a housing allowance where there is no tax paid on that, an allowance for mobile phone use, a clothing allowance, performance bonuses etc.

Bottom line the salary bit is artifically lower as tax is paid on it.  A large chunk of remuneration comes in the form of bonuses where there is no tax.  Govt statistics are based on the salary not salary plus all the bonuses.

ADR is correct in that the Chinese have money left over at the end of the month, many times a lot more than their western equivalent. Its not how much you makes its how much you have left over at the end of the month.

THE REAL FAKE E is correct everything is paid in cash in China its so hard to get debt, its 30-50% deposit ref cars and houses. Even with 40% deposit for a car you have to put your apartment up as collateral and pay the loan off in two years. Many people just wait until they have the full amount and pay cash.

'you have to put your apartment up as collateral and pay the loan off in two years.'

And of course since housing never goes down ( in fact it seems ot double every year in China), ther's no risk there.  Eons ago (2007) Americans thought so too.

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Let's start exporting DHS and TSA jobs and bring back the manufacturing.

isn't PPP deviates both in the short run and the long run, not a good idea using it to estimate....(i think) as a chinese, what i wanna say is that is definitely untrue.

Unfortunately PPP (or something similar) seems to be the only way to do international comparisons of living standards...

isn't PPP deviates both in the short run and the long run, not a good idea using it to estimate....(i think) as a chinese, what i wanna say is that is definitely untrue.

Bear in mind China Daily is in English; the govt is probably much more sensitive about Chinese-language publications.

Perhaps gyue could tell us if he/she's seen any similar analysis in the Chinese newpapers?