Chinese cities climbing up global cost ladder

LI MIN/CHINA DAILY

When it comes to how much we spend on groceries, few of us are given options. We don't fly off to a city in a distant country to do our food shopping more economically. Yet we are aware that there are significant variations in prices of everyday goods across different locations, even within the same country. For example, according to the findings of the latest Worldwide Cost of Living Survey, a kilogram of white grain rice costs 19 yuan ($2.99) in Shanghai but only about 9 yuan in nearby Suzhou.

The ranking, which compares the price of a weighted basket of goods, saw Chinese mainland cities become more expensive compared to their regional peers but continuing to offer value for money compared to hubs such as Singapore and Hong Kong. First-tier cities such as Shanghai, Beijing and Guangzhou are already as internationalized and expensive as their well-known Western European or North American counterparts.

In fact, the cost of living in Shanghai, the most expensive Chinese city surveyed, is now on a par with that of Tokyo, which held the unenviable title of the world's most expensive city for years. We (at Worldwide Cost of Living Ranking) expect first-tier cities to continue along these lines. But it is the second-, third- and fourth-tier Chinese cities that are attracting attention and rapidly moving up the cost of living ranking.

The ranking has highlighted a mixed performance among the Chinese cities we surveyed. On average, they have seen their cost of living decline by 2.5 percent when compared with New York, while simultaneously climbing up the ranking by an average of 13 places in the last year. This means that while they are getting cheaper compared with the US, they are becoming more expensive compared with almost everywhere else.

Ironically, the largest and richest cities like Beijing, Shanghai and Shenzhen offer a thinned opportunity in terms of economic potential. As these are more mature, they have less room for growth but greater existing spending power. High wages driven by rapid economic growth have also correlated with higher prices. This is particularly apparent in Shanghai and Shenzhen, but less so in Guangzhou and Tianjin. Shanghai may be 18 percent cheaper than Singapore, which currently ranks as the most expensive city, but this lead is shrinking; five years ago the difference was almost 25 percent.

Conversely, Guangzhou and Tianjin offer the best value among the cities surveyed on the mainland. Both are about 23 percent cheaper than Shanghai but, as their global profile grows, on an equal weighting with other international peers such as Amsterdam and Boston.

A weaker yuan and stock market declines have prompted a new wave of consumer caution on the mainland, which has spread to neighbouring markets, such as Hong Kong. Weakening demand and maturity in some locations have led to a halt or fallback in local cost-of-living terms. Further uncertainty could drive down spending even further, undermining some of the wage and price inflation of the past decade. However, Chinese metropolitan economies are still outperforming many of their regional and global peers and, barring a crash in consumption or significant currency devaluation, Chinese cities are likely to see their relative cost of living continue to rise.

This may sound like bad news for Chinese cities but as long as wage growth exceeds price growth people will continue to be better off. Despite economic uncertainty, Chinese household incomes are continuing to rise, driving more and more families into the middle income brackets. And as the Chinese economy becomes less trade-intensive, consumption is bound to replace investment as the main driver of growth.

On a global stage, the strong US dollar and weaker euro, which pushed US cities upwards and eurozone cities further down the ranking, have made Chinese cities appear relatively stable. In relative terms, with US cities riding high, the rest of the world is becoming cheaper. Yet Chinese cities have moved up the ranking, barely diminished by the weakened yuan.

Many will continue to dream of cheaper groceries, clothes and bills when reviewing the ranking. But people should be careful what they wish for. While Zambia's capital Lusaka offers best value for money in the ranking, it is also among the least liveable cities. But that's a whole different index.

The author is an editor with the Worldwide Cost of Living Ranking of The Economist Intelligence Unit.