China’s Runaway Chariot

Friday, January 21, 2011
By Paul Martin

by Charles Hugh Smith

China’s authorities may have lost the ability to control the increasingly complex and opaque Chinese economy.

China’s economy appears to have reached a critical threshold of complexity and obscurity that renders it uncontrollable. Recent reports of surging bank loans, real estate speculation, industrial growth and inflation triggered a sharp decline in the Shanghai stock index yesterday.

A recent comparison of food prices in Boston and Beijing found that China is now more expensive than the US.

Though the first link states that the average urban wage in China is about $3,000 a year, my sources in China report that a college-educated worker makes about $6,000 a year–about one-eighth the average U.S. income of $49,777. A mid-level manager might make $12,000 a year–an excellent salary in China.

Food eats up (sorry) about 40% of the average household budget in China, roughly in line with the percentage U.S. households devote to housing/mortgages. As I have noted here before, it’s not the absolute percentage rise in essentials such as food and energy that matters, it’s the relative impact on lower-income households that matters.

A 10% rise in food prices in a household that spends 10% on food (a typical upper-middle class U.S. household) results in a “statistical noise” 1% increase in the family budget. In a family budget with 40% devoted to food, a 10% increase in food meaningfully crimps household spending. A doubling of food prices would be catastrophic.

The Rest…HERE

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