I am currently in Beijing. This is my 26th trip to Asia since 2007 and my 9th time to visit mainland China. I have a hobby of going for long walks daily, often for 20 to 30kms. I use this time on meditating on and pondering my observations. Whenever I am in a foreign country, it always fascinates me to look at similar goods and services and compare the prices to those in my home in Canada. I have had some sticker shock on my current trip, and wanted to see if I could back up my sense of the pricing. On this trip, I noticed that dining just seems to be really expensive and hotels have been similarly priced to those in New York City or London. It is definitely cheaper to stay in Singapore or Hong Kong.
I was working on a project and decided to take a break, so I took a two-hour walk from my hotel to Tiananmen Square. During my walk, I pondered the following questions:
1. Is this for real, or is it just my memory? Maybe it just seems more expensive and perhaps I have just forgotten about it?
2. I don’t like spending more than I have to, but is this a good or a bad thing for me financially?
3. How can I benefit from this?
I am currently back at the hotel in the executive lounge with Qian having a glass of wine while we both have our laptops out on a table working independently before we go for dinner at Hou Hai. I am reminded of the Economist magazine’s Big Mac Index that prices the popular fast food items in 58 countries since 2006. When I first started traveling to mainland China, the study confirmed that in 2007, a Big Mac in China cost $1.33 Canadian dollars. Today, it costs $3.56, that is a dramatic increase of 266%! The price increase represents the inflation resulting from the rapid growth of the Chinese economy and the roughly 35% decline in the Canadian dollar compared to the RMB. After close analysis, my feelings were right it wasn’t just my memory. There really has been a tremendous price increase in less than ten years.
The first question took some analysis to answer, while the other two took about a minute of thought. For companies like Eiffel Peak, it is a significant time. The advisory services that we provide to Chinese companies on transactions are at a 35% discount compared to the past, due to the decline in the Canadian dollar compared to the RMB. This was during a time when Chinese companies have more capital than ever for allocation to advisory services.
The second is the purchasing power of Chinese citizens due to the increased value of their assets. This was also at a time when there are many undervalued assets or companies. As an example, since 2007, many real estate assets in China have quadrupled in value; a condo in Beijing is much more expensive than a condo in Vancouver. Nonetheless, a Canadian blue chip, Asian controlled company such as Husky Energy is available for a current price 60% lower than its ten-year high. This will continue to spur tremendous investment in Canada by Chinese investors which is great for companies like Eiffel Peak.
Thus, the realization I came up with after my walk is this: I am Canadian, Beijing is getting more expensive, and it is awesome news!