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PeakTrader said...

James says: "Higher demand leads to higher prices."

Where did that higher demand come from? Much of it came from free trade.

Higher demand causes higher prices, but higher prices also causes supply to increase.

The result is higher living standards.

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PeakTrader said...

Sprewell, your China GDP per capita is an estimate based on PPP, which doesn't take into account quality and consumption pattern differences.

China’s employment and compensation costs in manufacturing through 2008
BLS

"China’s hourly compensation costs remain far below those of many of its East Asian neighbors like Japan [$27.80] and Taiwan [$8.68], but are roughly on par with those of others like the Philippines [$1.68].

Inflation in China has been substantial. Consumer prices in urban areas increased an average of 3.3 percent annually from 2005 through 2008. Consumer prices in rural areas increased even more rapidly, at an average annual rate of 3.9 percent.

Yearly compensation per employee (98.46 million in manufacturing)

2008 21,593 yuans ($3,108)

Despite large increases in recent years, hourly compensation costs in China’s manufacturing sector remained only 4 percent of those in the United States in 2008; that year, hourly compensation costs rose to $1.36."

Over the past 10 years, China's consumption fell from 45% to 36% of GDP (U.S. consumption is 70% of GDP and E.U. consumption is 60% of GDP).

There seems to be few bargains in China and more saving.

Excluding PPP, China's per capita GDP is less than $3,500. However, $7,500 PPP seems too high based on China's GDP before 1980.

Also, China exports a huge percent of its GDP, imports goods to produce those exports (e.g. capital goods, raw materials, energy, etc.), and households consume little.