okay i donno where to put this so i’ll just put it here
i’ve been doing some maths (gasp!) - and… here goes:
in CHINA:
1 bottle of mineral water: 2RMB (NT$8)
1 macdonalds - the cheapest ice cream wateva you call it - 2RMB (NT$8)
1 random mobile phone: 1500RMB (NT$6000)
average worker’s salary - about 800RMB/month (US$100) (NT$3200)
This means - that with 1 month’s salary - a Chinese worker could buy
400 bottles of mineral water
OR
400 ice creams
OR
0.5 phones
in TAIWAN:
1 bottle of mineral water: NT$20
1 macdonalds ice cream: NT$10
1 of the same mobile phone: NT$5000
average worker’s salary - okay let’s just say
about NT$15,000/month (US$500)
This means - that with 1 month’s salary - a Taiwanese worker could buy
750 bottles of mineral water
OR
1500 ice creams
OR
3 phones
Now there’s something wrong - the figures should in theory be equal:
the chinese worker should be able to buy the same amount of stuff as the taiwanese worker - if goods are priced correctly.
so in this case - it must mean:
A) Chinese goods are too expensive (inflation)
B) Chinese are being paid too little (but hang on - it’s cheap labour)
C) Taiwanese are being paid too much (hmmmm??)
D) Taiwanese goods are too cheap (deflation)
You just discovered the meaning of “cheap labour.” And you don’t need to worry about the economy slowing down because for every twenty kids who can’t afford an icecream cone there will be one fat rich kid who eats twenty. It’s the beauty of capitalism. As long as a few people get rich and fat it doesn’t matter what happens!
[quote=“archangel-x”]okay i donno where to put this so I’ll just put it here
Now there’s something wrong - the figures should in theory be equal:
the Chinese worker should be able to buy the same amount of stuff as the Taiwanese worker - if goods are priced correctly.[/quote]
Why is there something wrong? By your theory someone living in Zimbabwe should be able to buy 5 plasma television sets per year.
Some nations are wealthier than others, and can buy more stuff.
Are you thinking of PPP (purchasing power parity?) That’s simply a way to measure a nation’s wealth independent of exchange rates.
You made one major mistake in your calculations. The average Taiwanese worker doesn’t make 15,000NT a month. That’s what your average overseas contract worker (the Filipina maids and Indonesian factory workers) make; I know, I’ve asked a few of them what they earn in a month. The average blue collar Taiwanese makes at least twice that. Which comes out to be a bit over $1,000 U.S. (annual per capita in Taiwan is roughly $16,000 - $17,000 U.S.).
That would only be true if the marginal product of labor between the two countries were equal (they’re not) and there’s free movement of labor between the two countries (there isn’t).
If you’re thinking of PPP, the theory goes that prices and exchange rates equalize so that the price of any two goods between two countries should be the same. That is, a Big Mac in Taiwan should cost the same as a Big Mac in China. Strict PPP usually fails because there are often many untradeable inputs involved in a product. For instance, the cost of labor is reflected in the price of a Big Mac and a McDonald’s worker costs a lot more in Taiwan than in China. There’s an additional problem with the case of China because their exchange rate isn’t floating.
I still remember all of this economic theory from college, I speak fluent Chinese, and yet I still work in a buxiban in the countryside. :help:
Minimum wage is around 16,000 NT a month (which is what overseas workers are paid). College graduates straight out of school average 25,000 NT a month.
Where’d these numbers come from? I’m no expert, but I recall China’s average yearly salary being only a few hundread bucks (maybe like 3-400 US). Let me know if I’m wrong. China has a LOT of people and that makes the numbers strange to compare anyway (1 billion some vs. 23 million). Maybe it would be better to compare the average salary of people in Beijing or Shanghai vs. Taipei. Becuase cats (people) in the counrty (China) couldn’t buy Mc D’s, a cell phone or (I’m assuming) bottled water if they wanted to. Just some thoughts.
This above statement from ali is nearly correct. PPP just means that if the purchasing power were the same for two countries the exchange rates of the two countries’ currency should be stable or in equilibrium. Since the purchasing power of Taiwan and China are not equal from this survey by Archangel-x:
[quote]in China:
1 bottle of mineral water: 2RMB (NT$8)
1 macdonalds - the cheapest ice cream wateva you call it - 2RMB (NT$8)
1 random mobile phone: 1500RMB (NT$6000)
average worker’s salary - about 800RMB/month (US$100) (NT$3200)
This means - that with 1 month’s salary - a Chinese worker could buy
400 bottles of mineral water
OR
400 ice creams
OR
0.5 phones
in Taiwan:
1 bottle of mineral water: NT$20
1 macdonalds ice cream: NT$10
1 of the same mobile phone: NT$5000 [/quote]
one can correctly conclude that the exchange rates would need to be artificially kept stable. And in fact that is what happens in practice.
Another interesting thing alidarbac brought up from his ancient studies in economics: [quote]Strict PPP usually fails because there are often many untradeable inputs involved in a product. For instance, the cost of labor is reflected in the price of a Big Mac and a McDonald’s worker costs a lot more in Taiwan than in China.[/quote]
This time he is absolutely spot on. PPP or purchasing power parity is rarely achieved between two countries because the “inputs” of products or services in the two countries cannot be easily interchangeable/equilibrated ( because of border restrictions,immigration, skills,distance etc.) China has lower costs for most “inputs” and because Taiwan cannot match these costs (esp. low skilled labor), employers just move their factories and set up shop in China to enjoy these lower costs of inputs. Results: Taiwanese workers are being ignored over cheaper Chinese workers. And this is true because we observe more and more Taiwanese companies investing in China and moving all sorts of labor intensive manufacturing over there.
Finally the main question of this thread : China inflation? (Threat of Inflation etc…) Strictly speaking since the exchange rates are not allowed to equilibrate reinforcing the disparity in PP there should not be inflation as the RMB is undervalued when compared to the Taiwan’s NT . But there is another source of inflation totally ignored here which is the cost of imported raw materials for most manufacturing such as iron ore, crude oil etc etc, If the prices of these increase and RMB is not allowed to appreciate inflation will be imported that way.
