Friday, June 22, 2012

Back from Vacation

Well, I'm finally back from my 2 week vacation in China. My flight was supposed to land at Pearson International (YYZ) in Toronto yesterday, June 21, at 6pm. We ended up getting diverted to Ottawa due to a major storm in Toronto that closed Pearson for a bit. We ended up spending 3 hours in Ottawa sitting on the tarmac, refueling, and waiting to take off. After getting back to Toronto around 10pm, we had to wait another 30 minutes for an available gate, due to the massive backlog. After all was said and done, I got my luggage around 12:45am June 22.

Nothing too exciting happened in China. I mostly spent time with my grandparents. I did get a chance to look around Beijing and from the looks of things, the economy in China is humming along, and inflation is somewhat in control now.

Last year when I went back in Q3, prices on things like ground pork were going through the roof. This year, local are still experiencing volatile food prices, but they seem to be better than before. One interesting observation is that the price fluctuations seem to rotate around. First it was green onions, then it was eggs. Prices would shoot up 10-20%, and then stabilize. In some instances, the prices actually tanked the following season after too much product came on to the market.

I view these occurrences as good events. Signs that China is transitioning to a more market driven, supply demand based economy.

For those that use the Big Mac Index, last time I went back (9 months ago), the Big Mac meal was 17 RMB. This time, it is 21 RMB.

Regarding currency valuation, I exchanged some RMB to USD at 6.36 (vs spot rate 6.35). China's banks seem to rip consumers off a lot less, at least on the FX front, than Canadian or US banks. I also educated my aunt a bit about how the RMB exchange rate affects importers, exporters, and consumers alike. She commented that locally, they've seen a lot of small export businesses go out of business, as the RMB has risen in value, and much of the increased purchasing power consumers should have received from a stronger RMB, has been eroded by inflation.

Regarding the Chinese property bubble, there certainly are signs of trouble. In Beidaihe area, a popular ocean-side tourist / resort locale near Beijing, some properties have supposedly already fallen 20-30%. I do expect this area to be much more volatile than normal urban residential areas, as most of the purchases are funded by the affluent, and at some point, there will be a lack of people who want, or can afford to buy around Beidaihe/Qinhuangdao area.

I do want to comment that Chinese home building standards are VERY bad compared to North America. Their apartments tend to start looking like 50 year old buildings about 5-10 years after construction.

All in all, it looks like Chinese economy is doing okay for now, but has significant risks and headwinds looming.


  1. It's good to hear they have inflation under control. Don't want the middle class to lose too much purchasing power since consumerism is becoming a larger part of their economy now. Do you have any investments in China? I don't understand the landscape enough to buy anything like real estate or companies. So far I only have stocks in US businesses that make part of their revenue from China.

  2. Welcome back! Always analyzing the markets even on vacation hehe :)

  3. thanks :) i can't help but think of things that affect my investments even while on vacation lol

    no i dont have any investments in China other than some GICs denominated in RMB. i dont feel comfortable buying chinese stocks.