Economy

City dwellers find prices unaffordable, PBOC says

By Li Jiabao (China Daily)
Updated: 2011-06-17 13:34

BEIJING - More than two-thirds of urban residents said prices were unaffordably high in the second quarter, according to survey results released by the People's Bank of China (PBOC) on Wednesday.

The survey of 20,000 bank depositors in 50 large cities showed that 68.2 percent of residents found consumer prices too high, a quarter-on-quarter increase of 1.3 percentage points, and 16.8 percent said they are satisfied with the prices, a quarter-on-quarter decrease by 0.5 percentage point. The survey also said 45.4 percent expect prices to rise in the third quarter, down 1.7 percentage points from the first quarter.

About 74.3 percent of respondents also said property prices were beyond their means. The figure is almost the same as in the last quarter. More than one-quarter of respondents expected property prices to keep climbing in the second half of the year, while 34.2 percent of residents thought prices would stay stable. Only 14.6 percent of residents expressed willingness to buy property in the next quarter, a drop of 0.8 percentage point from the previous quarter.

Gui Haoming, an analyst at Shenyin & Wanguo Securities Co in Shanghai, said that although hyperinflation is yet to come, the consumer price index (CPI), the main gauge of inflation, is already very high, with multiple effects.

"High inflation has strengthened people's expectation of price rises in the future, and they will cut back on purchases and investments. It also affects daily life of people with low incomes and harms the national economy's development."

He attributed residents' perception that consumer prices were too high to the slow growth of incomes compared with the fast growth of GDP.

"Residents saw an average 5 percent annual increase of income in recent years, which is far behind the growth of GDP. Incomes account for an increasingly smaller share in the distribution of national wealth. Moreover, people are hit with a negative real interest rate of 3 percent since the current CPI is 5.5 percent and the current annual interest rate on bank deposits is 2.5 percent. Their savings are losing value and their incomes increase slowly. That's why they find prices unaffordable."

Up to 83 percent of respondents preferred to save their disposable income in bank deposits, while 17 percent preferred to spend it.

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Real estate remains the top investment choice, with 22.2 percent of respondents saying they would invest in properties. But that number was down 2.8 percentage points compared with the last quarter.

Yu Ping, an 84-year-old retiree in Beijing, recently stopped eating out with family members because "a dinner costs several hundred yuan now." She also dropped her plan to buy a new TV and refrigerator and gave up traveling this year.

Shi Xinjie, a bank employee in Shanghai, said she recently sent her 18-month-old baby to live with her parents in the Xinjiang Uygur autonomous region, where the cost of living is much lower. She recently began bringing her lunch to work instead of going out for lunch with colleagues.

Wei Zhenwei, chairman and CEO of RedWell Holding (Group) Ltd, said that people are more willing to convert cash into physical assets when inflation is high because earnings from securities and bank savings cannot compete with inflation.