Monday, September 19, 2011

Is living in Beijing more expensive than New York?

New York Versus Beijing A recent posting of a comparison of prices between Beijing and New York has been subject to much debate on Chinese microblogs. The comparison shows that foreign brand consumer goods cost more in Beijing than in New York. Is this true?

We ran a salary purchasing power parity calculation and included all cost of living basket items for an expatriate moving from New York to Beijing. The overall cost of living difference puts Beijing at 13.2% cheaper than New York. Not everything is cheaper in Beijing however. The cost of living comparison of each individual basket shows that clothing, furniture and appliances are 31% more expensive in Beijing, while communication (mobile; internet etc) is more than 60% more expensive than New York. Foreign goods that are regarded by Chinese as "luxury goods" are exceptionally expensive in China. The prices for some "Made in China" goods are in fact higher in China than in the United States, largely as a result of the higher tax in China which is largely made up of "turnover" taxes, such as value-added tax, sales tax and consumption tax. In addition China's logistics costs are relatively higher, which further pushes up the prices. These items constitute a relatively small portion of the average expatriates expenditure.

The items that people spend most of their salary on are, in general, cheaper in Beijing. Household accommodation is 20% cheaper in Beijing while groceries are 14% cheaper, meals out are 38% cheaper, and transport is 20% cheaper. Public transportation, such as the bus and subway in New York, is substantially more expensive than Beijing.

While the cost of living may be lower in Beijing, salary purchasing power is substantially higher in New York given that salary levels are far higher in the USA compared to China. The minimum hourly wage in different states of the United States range from 4.1 U.S. dollars to 8.7 U.S. dollars, according to data published by U.S. Department of Labor. According to statistics from China's Ministry of Human Resources and Social Security, the minimum hourly wage in Beijing reached 13 yuan in the first quarter of 2011, higher than the rest of China but lower than the lowest minimum hourly wage in the United States. As a result while it is true that products made in the USA are normally produced at a far higher cost than the same product made in China, people have a higher level of purchasing power.

So for now at least, the American dream continues. But for how long?