Sizing Up Chinese Consumers

My friend, the normally genial young professor, sounded genuinely indignant. “Ten yuan for a bowl of noodles? That’s robbery!”

In between slurps, the female junior banker with us nodded in agreement.

I actually thought it was a great deal. The bowl served by the restaurant in Suzhou was large and full of flat rice noodles, vegetables, and a few pieces of pork — a very satisfying lunch. And all for $1.10.

Now, my friends could easily afford the lunch. And there were some extenuating circumstances.

We were on a day-long tour of “China’s Venice,” an Eastern city about an hour’s train ride from Shanghai.

At noon, the tour bus took us to an isolated restaurant where we clearly paid captive-audience prices for lunch. Indeed, I later learned that you can get a comparable meal even in good Shanghai neighborhoods for only four yuan.

But my friends’ apparent definition of price-gouging was just one of many signs I saw in my nearly ten weeks in China indicating that this country’s consumer market will sorely disappoint foreign firms for decades to come.

Most foreign consumer goods are just way too expensive for the vast majority of Chinese to buy with any regularity.

The evidence is just as abundant at the other end of the consumer products spectrum. In Beijing, in November 2002, I was looking for a computer with Microsoft Windows 2000 to handle some digital photos of mine.

A grad student I’d befriended told me that she and all her roommates had it on their desktops. Since software piracy is rampant in China — despite several trade agreements in which Beijing solemnly promised to stamp it out — I asked her if these programs were illegal copies.

“Of course they are,” she laughed, as if I had asked her whether guys her age were tough to deal with. I’m not one to argue, and I have no love for Bill Gates.

My friend, moreover, is an honorable person and she comes from a modest but hardly impoverished family. But I do believe in intellectual property protection.

I asked her, “Don’t you feel a little guilty about this?”

She replied, “We’d buy the real thing if the prices weren’t so ridiculously high.” And it’s not just students and young scholars on academic budgets who feel this way.

Many economists I met in China rationalized widespread intellectual property theft by complaining about the high cost of foreign information technology products.

When I mentioned the high costs of production, research, and development, many replied, “Then do these tasks in China!”

Shen Wei Guo is Deputy General Manager of the Shanghai Zhangjiang Co., which is developing a large science and technology park in the city’s booming Pudong region.

Boasting venture capital experience in pharmaceuticals, he knows the high costs and risks of drug development.

Yet, he cited high foreign prices as one major reason China is working so hard to develop its own pharmaceutical industry. Indeed, this sector is becoming one of Zhangjiang park’s specialties.

“Think of it this way,” my grad student friend said. “One yuan [about $0.12] for us is like a dollar for you.”

By that standard, even some of the basic necessities in China aren’t especially cheap for locals.

A big and very tasty meal at the Peking University student dining halls is about 6-9 yuan. With a meal card, you get 15% off.

And many of the students complained that the food was too expensive and not all that good. I loved it. A small foreign soft drink like Coke can nearly double the bill.

Beer, however, is only three yuan — and you get a 24-ounce bottle! Anyone can eat well at a small restaurant for 15-20 yuan (less drinks).

Sometimes I bought food to snack on in my room — mainly fruit. Imported oranges can be very expensive — ten yuan each for big ones on the campus of Beijing University.

Domestic mandarin oranges and tangerines are much more reasonable — usually one yuan each if you buy from a street vendor.

And you can get nice bananas for about two-thirds of a yuan if you shop around.

The Beijing and Shanghai subways charge three yuan for each ride throughout the whole system.

Most Shanghai buses — which run very frequently — cost two. The starting cab fare in both cities — where prices are relatively high — is ten yuan.

An international telephone card lets you make about 40 minutes-worth of overseas calls — and lists for 100 yuan.

But usually it sells for less than 50 yuan. And although I was told that domestic cell phone calls are no bargain, you can send a short-text message on your cell to anywhere in China for a tenth of a yuan — and hundreds of millions of Chinese send several each day.

Of course, at these prices, I was living high off the hog (at least by my normally Scrooge-like standards).

And this is also why foreign companies find business costs in China correspondingly low. The deal gets even better when the Chinese government throws in subsidies and tax breaks.

Don’t get me wrong — even at the prices mentioned above, there are vast numbers of Chinese, notably in Beijing and Shanghai, snapping up consumer electronics, gorging on soft drinks and other junk food, taking taxis — and filling up even high-end restaurants.

There are also quite sizable classes of Chinese jet setters and yuppies that crave imported luxury goods — which have a significant cachet in China.

At the same time, be aware that if you want some peace and quiet in a big, crowded, noisy Chinese city, head for the nearest high-end Western-style shopping mall.

There you find plenty of space, nary a customer disturbing the displays of Louis Vuitton bags and Versace haute-couture.

But what I did not find in China is the kind of unprecedented mass consumer market that Western businessmen have long dreamed of.

You have heard the refrain before — about the fanciful world in which each of the more than one billion Chinese buys one of everything that all of their companies make.

They could be a lot more confident if $1.10 for a heaping, delicious bowl of noodles weren’t considered such an outrage.

This article is adapted from an article that first appeared on the web site of the U.S. Business and Industry Council Education Foundation [http://www.tradealert.org].