The price of the great City

Guangzhou is a great city. Great in a sense that having many skycrapers, convenient modern subway systems, Mcdonald fast food and Starbucks coffee.

To live here is just like to live in any modern city in elsewhere of the world.

To improve air quality, motorcycle is prohibited to ride in the city. People are educated to take public transportation vehicles, such as subway or bus, and the price is very cheap, It only take a few Yens. The longer the distance you take the more you pay.

Beijing's subway taking care of their people and will cost a fixed 2 Yens no matter how far you want to go, a Communism thinking and friendly to the environment Here in Guangzhou is the consumer pays based on the mileage, a more capitalism kind of thinking. 

Good environment is a public good and we can achieve up to an optimum supply by proper pricing. But when the pricing is not correct, especially when future cost or external effect are not taken, the incentive to provide such public good would be weeker that it should be. This is what we call market failure. Then government ruling might help.

I bought some local produce, two peaches and two apples, from the neary super market and found they cost me about 4 Yens each, about NT$20, not cheap as I thought.

I'm looking for a house to rent. 140 meter square (42.3 Pings) space apartment with furniture will cost me rental 7,000 Yens per month, that's about NT$33M per month, not cheap as I thought.

The real estate agency told me the 42.3-ping house will sell for 5MM Yens, about NT$24MM, NT$550M per ping, very expensive.

Then I sudenly understood why the pricing of the goods here are not cheap anymore.

The landlord's cost of owning asset is higher, so the rental, and then the cost of using the asset to do business, and finally part of the cost has been successfully transfered to the vulnerable public, the consumer.

Here to work in a resturant the monthly salary is only around 2M-3M Yens. But to eat a bowl of beef noodle will easily cost you 20-30 Yens in the city. No wonder the staff here will carry to the office the food prepareed by themselves.

The landlord's yield rate on rental is about 1.6%, very low. I think either the price of asset is over a reasonable level or the supply of asset is high and the competitive market help contain the rental. But the original asset acquisition cost might be very low and the yield rate from landlor's point of view might be higher, and landlord would like to keep the asset in hope of further capital gain in the future.  

Over the weekend, I found it's kind of hard to find a seat to sit and eat in the "expensive" restaurant. The consumption power is very strong. The increase of the salary might not be able to catch up the rise in the price of the asset. I guess there must be a lot people here should have already benefited from the asset capital gains. A sweet Capitalism poison to bite.

Damakey 2012/07/09 The price of the great City