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Wednesday, 3 December 2008
The Price Gap: Help! How Much Should Expat Pay?
Some Chinese wives won’t let their Western hubbies go shopping alone - prices will skyrocket when vendors see the luckless laowai. Nancy Zhang explores perplexing pricing.
Some Chinese wives won’t let their Western hubbies go shopping alone - prices will skyrocket when vendors see the luckless laowai. Nancy Zhang explores perplexing pricing.
Newly arrived foreigners are struck by how affordable, how cheap it is to live in China. Everything from taxis to food to shopping is unbelievably cheap in terms of their national currencies.
But the longer they stay, the more they become aware that, whatever the “real” value, they often pay higher prices than local Chinese, often much higher. Expat “rip-off” is vigorously debated.
Not only do foreigners tend to pay more for the same items, Western-style services and products tend to cost more – for expats and Chinese alike – than similar domestic products and services.
This raises issues of fairness and value for money, the expat price gap.
There’s a widespread stereotype among Chinese that most expats, Westerners, are well off, live well and spend a lot. They can afford to pay, the argument goes, and Chinese are comparatively not rich.
Of course, not all foreigners live high, make piles and charge to corporate accounts. Many don’t earn a lot, regularly eat noodles and hunt for bargains.
It’s commonly said there are three opening prices: the price for tourists, expats who speak some Chinese and for Chinese themselves.
British expat James Jobbins, a financial adviser, has lived in Shanghai for six months and got “scalped.” Having had a haircut twice at the same local barber shop, he found it cost 10 yuan (US$1.45) the first time, yet 30 yuan the second time.
“There’s no question they raised the price the second time because I’m a foreigner,” he says. “I went home and told my Chinese housemate, he laughed and said ‘you should have called me, it should only cost 10 yuan’.”
That’s a trifle, but higher prices for expats are pervasive. Chinese wives and girlfriends frequently shop with their husbands and boyfriends, ordering them to remain silent while they do the bargaining.
Tao Jing, married for just over a year to a Canadian, says: “Generally, my husband gets charged more because he’s a foreigner. I avoid shopping with him, or if we go together I ask him to keep some distance while I buy something,” she says.
Having a foreign husband or wife in tow can affect prices for Chinese shoppers – either up or down. Some shopkeepers ask “is that your husband/wife?” They can lower the price if there’s a spouse, or raise it because they think an expat couple can afford to pay more.
Another British expat in “professional services” who has been living in Shanghai for six years (asking not to be named because he doesn’t want to be publicly critical), says: “We all know foreigners get charged a premium. If you’re in a shop and the prices are not marked, expect higher prices than for locals.”
There is no government policy that foreigners should be charged more than Chinese. For health care in Chinese institutions, however, foreigners routinely pay more in international departments (but that’s another story).
Unmarked prices
Small, unregulated markets, vendors and shops are most likely to charge foreigners more for the same item. This is largely the result of the culture of bargaining, a reality around the world, especially the non-Western world.
It’s the norm to ask above the “Chinese price,” and good bargaining brings this down substantially. Foreigners often lack this skill, or are unaware of what things cost in China – they are struck by the relative cheapness.
Practice in bargaining and knowledge of local norms comes with time.
One street vendor of gloves and accessories near Changle Road comments: “It’s not that easy to profit more from foreigners – they’re getting savvy.”
Mr. Lee from Singapore has been living here for 10 years, and even though he speaks Mandarin, vendors can tell immediately from his accent that he’s not local – so the opening bid is higher. Lee, a restaurant owner, similarly asked to be identified only by his surname.
Over the years he has learned to bargain. “I only pay what I think the item is worth,” says Lee who is also teaching his teenage daughter to be savvier about benchmark prices.
“She recently bought a watch. The vendor first quoted a price of 1,500 yuan. She thought she did well by bringing this down to 380 yuan. But I looked at it and told her that it’s only worth 200 yuan.”
For Lee and many others, it’s not about the “real” value and realistic profit on an item.
“Over-pricing happens all over the world, anywhere with tourists. But nobody wants to be overcharged, no matter how rich they are. The cost is secondary to the worth of the thing you’re buying,” says Lee.
The long-term British expat, however, pragmatically says that’s part and parcel of choosing to live in China. “It’s up to you whether to bargain and whether you choose a more Western lifestyle that costs more. Personally I’m comfortable with the prices I pay in Shanghai.”
Unmarked pricing also extends to more expensive items and services, raising more serious issues. A common dismaying situation is apartment rental.
British expat Jobbins pays 6,500 yuan monthly for a one-bedroom apartment in downtown. He was frustrated to learn that a Caucasian friend who – aided by his Chinese father-in-law – found a three-bedroom apartment in the same area for 7,000 yuan.
“I understand it’s just economics, and it would probably happen in the UK too – agents won’t tell clients to haggle,” says Jobbins. “But it’s annoying as we’re all human beings, yet treated differently.”
Part of the “problem” is that there are different types of foreigners, with different needs, incomes and levels of “price sensitivity.”
“There is a class of people who are in a hurry and will take the first thing whatever the price, and it makes sense (to pay more) if it’s a corporate account and convenience is most important,” says Jobbins. “But it makes things harder for individuals and ordinary people who aren’t so rich. We should all do some research.”
Paying far more rent for an apartment that would cost Chinese less is a particularly expensive mistake to make, as it’s a one-off decision that is difficult to change and means large, ongoing payments.
The best thing is to take along a trusted Chinese friend to help bargain.
“It’s probably the only way,” Jobbins says.
High markup
A more complex problem is the higher prices charged for services and products catering to Western lifestyles. These include bars, nightclubs and restaurants serving Western food – both foreigners and Chinese pay more, as prices are fixed.
You can’t bargain there but prices are much higher than in Chinese restaurants catering to locals. Prices may be even as high as in the United States or Europe.
For example, Western-brand restaurants can charge nearly 100 yuan per pizza without drinks or side dishes. A meal in a mid-range Chinese national chain, The Manchurian Restaurant, is typically 25 yuan per person for a shared meal including soft drinks.
American chef Jason Jones arrived in Shanghai two years ago to work in a Western restaurant and discovered the huge mark-up gap between the actual cost of food and the prices charged.
“When you run a restaurant, you understand what each dish costs, and some Western restaurants have prices that are a bit ridiculous,” says Jones. “It’s Westerners as well as locals who take advantage of other Westerners. I really didn’t appreciate it.”
So Jones opened his own affordable restaurant serving Western food: Munchies. A Munchies burger costs 32 yuan. He breaks down the cost of making a burger.
“Even using imported beef, a 200-gram patty costs around 5 yuan. Another 1 or 2 yuan for bread, 0.5 yuan for condiments including cheese, and you’re looking at a total of around 10 yuan for a burger, including a side dish of potato salad.”
Though this doesn’t include the cost of labour and overhead, Jones says these costs are usually seen as long-term investments in the US, rather than directly priced into the food.
By this calculation, the 70 yuan-burger common in downtown, American-style restaurants has a mark-up of nearly 86 percent.
Smoothies and milkshakes in health-conscious restaurants are even higher. As they require only local fruit and vegetables, Jones estimates the cost-price at around 3 yuan. With a price of around 30 yuan, 90 percent is mark-up.
Many people are unaware that a lot of imported ingredients don’t cost that much. Jobbins often eats in Western restaurants, and he is puzzled by the high prices.
“I don’t know why it’s quite so much more than local restaurants. I can understand if it’s French wine or some other imported ingredients, but it can’t all be imported,” Jobbins says.
He cites imported beef, as an example, saying “it’s just twice as much as Chinese beef. So instead of 2 yuan for a local patty, imported meat would cost 5 yuan. It doesn’t cost as much as you think. It’s not the imported goods, but the finished product that’s expensive.”
According to Jones, this is due to the “hit and miss” nature of the restaurant industry in Shanghai.
“Restaurants here tend to open one day and close the next, so they want immediate returns,” he says.
Though Munchies is one of very few low-cost Western restaurants, its owner predicts that more businesses will enter this market. As competition stiffens prices will come down.
Chinese consumers are also increasingly interested in Western brands, products and lifestyles. But as Chinese consumers are much more price sensitive, businesses catering to them will be driven to keep prices low.
These businesses often offer less-authentic Western fare, but by following the thrifty local crowd, you can find good low-cost alternatives.
1 comment:
The Price Gap: Help! How Much Should Expat Pay?
Nancy Zhang
3 December 2008
Some Chinese wives won’t let their Western hubbies go shopping alone - prices will skyrocket when vendors see the luckless laowai. Nancy Zhang explores perplexing pricing.
Newly arrived foreigners are struck by how affordable, how cheap it is to live in China. Everything from taxis to food to shopping is unbelievably cheap in terms of their national currencies.
But the longer they stay, the more they become aware that, whatever the “real” value, they often pay higher prices than local Chinese, often much higher. Expat “rip-off” is vigorously debated.
Not only do foreigners tend to pay more for the same items, Western-style services and products tend to cost more – for expats and Chinese alike – than similar domestic products and services.
This raises issues of fairness and value for money, the expat price gap.
There’s a widespread stereotype among Chinese that most expats, Westerners, are well off, live well and spend a lot. They can afford to pay, the argument goes, and Chinese are comparatively not rich.
Of course, not all foreigners live high, make piles and charge to corporate accounts. Many don’t earn a lot, regularly eat noodles and hunt for bargains.
It’s commonly said there are three opening prices: the price for tourists, expats who speak some Chinese and for Chinese themselves.
British expat James Jobbins, a financial adviser, has lived in Shanghai for six months and got “scalped.” Having had a haircut twice at the same local barber shop, he found it cost 10 yuan (US$1.45) the first time, yet 30 yuan the second time.
“There’s no question they raised the price the second time because I’m a foreigner,” he says. “I went home and told my Chinese housemate, he laughed and said ‘you should have called me, it should only cost 10 yuan’.”
That’s a trifle, but higher prices for expats are pervasive. Chinese wives and girlfriends frequently shop with their husbands and boyfriends, ordering them to remain silent while they do the bargaining.
Tao Jing, married for just over a year to a Canadian, says: “Generally, my husband gets charged more because he’s a foreigner. I avoid shopping with him, or if we go together I ask him to keep some distance while I buy something,” she says.
Having a foreign husband or wife in tow can affect prices for Chinese shoppers – either up or down. Some shopkeepers ask “is that your husband/wife?” They can lower the price if there’s a spouse, or raise it because they think an expat couple can afford to pay more.
Another British expat in “professional services” who has been living in Shanghai for six years (asking not to be named because he doesn’t want to be publicly critical), says: “We all know foreigners get charged a premium. If you’re in a shop and the prices are not marked, expect higher prices than for locals.”
There is no government policy that foreigners should be charged more than Chinese. For health care in Chinese institutions, however, foreigners routinely pay more in international departments (but that’s another story).
Unmarked prices
Small, unregulated markets, vendors and shops are most likely to charge foreigners more for the same item. This is largely the result of the culture of bargaining, a reality around the world, especially the non-Western world.
It’s the norm to ask above the “Chinese price,” and good bargaining brings this down substantially. Foreigners often lack this skill, or are unaware of what things cost in China – they are struck by the relative cheapness.
Practice in bargaining and knowledge of local norms comes with time.
One street vendor of gloves and accessories near Changle Road comments: “It’s not that easy to profit more from foreigners – they’re getting savvy.”
Mr. Lee from Singapore has been living here for 10 years, and even though he speaks Mandarin, vendors can tell immediately from his accent that he’s not local – so the opening bid is higher. Lee, a restaurant owner, similarly asked to be identified only by his surname.
Over the years he has learned to bargain. “I only pay what I think the item is worth,” says Lee who is also teaching his teenage daughter to be savvier about benchmark prices.
“She recently bought a watch. The vendor first quoted a price of 1,500 yuan. She thought she did well by bringing this down to 380 yuan. But I looked at it and told her that it’s only worth 200 yuan.”
For Lee and many others, it’s not about the “real” value and realistic profit on an item.
“Over-pricing happens all over the world, anywhere with tourists. But nobody wants to be overcharged, no matter how rich they are. The cost is secondary to the worth of the thing you’re buying,” says Lee.
The long-term British expat, however, pragmatically says that’s part and parcel of choosing to live in China. “It’s up to you whether to bargain and whether you choose a more Western lifestyle that costs more. Personally I’m comfortable with the prices I pay in Shanghai.”
Unmarked pricing also extends to more expensive items and services, raising more serious issues. A common dismaying situation is apartment rental.
British expat Jobbins pays 6,500 yuan monthly for a one-bedroom apartment in downtown. He was frustrated to learn that a Caucasian friend who – aided by his Chinese father-in-law – found a three-bedroom apartment in the same area for 7,000 yuan.
“I understand it’s just economics, and it would probably happen in the UK too – agents won’t tell clients to haggle,” says Jobbins. “But it’s annoying as we’re all human beings, yet treated differently.”
Part of the “problem” is that there are different types of foreigners, with different needs, incomes and levels of “price sensitivity.”
“There is a class of people who are in a hurry and will take the first thing whatever the price, and it makes sense (to pay more) if it’s a corporate account and convenience is most important,” says Jobbins. “But it makes things harder for individuals and ordinary people who aren’t so rich. We should all do some research.”
Paying far more rent for an apartment that would cost Chinese less is a particularly expensive mistake to make, as it’s a one-off decision that is difficult to change and means large, ongoing payments.
The best thing is to take along a trusted Chinese friend to help bargain.
“It’s probably the only way,” Jobbins says.
High markup
A more complex problem is the higher prices charged for services and products catering to Western lifestyles. These include bars, nightclubs and restaurants serving Western food – both foreigners and Chinese pay more, as prices are fixed.
You can’t bargain there but prices are much higher than in Chinese restaurants catering to locals. Prices may be even as high as in the United States or Europe.
For example, Western-brand restaurants can charge nearly 100 yuan per pizza without drinks or side dishes. A meal in a mid-range Chinese national chain, The Manchurian Restaurant, is typically 25 yuan per person for a shared meal including soft drinks.
American chef Jason Jones arrived in Shanghai two years ago to work in a Western restaurant and discovered the huge mark-up gap between the actual cost of food and the prices charged.
“When you run a restaurant, you understand what each dish costs, and some Western restaurants have prices that are a bit ridiculous,” says Jones. “It’s Westerners as well as locals who take advantage of other Westerners. I really didn’t appreciate it.”
So Jones opened his own affordable restaurant serving Western food: Munchies. A Munchies burger costs 32 yuan. He breaks down the cost of making a burger.
“Even using imported beef, a 200-gram patty costs around 5 yuan. Another 1 or 2 yuan for bread, 0.5 yuan for condiments including cheese, and you’re looking at a total of around 10 yuan for a burger, including a side dish of potato salad.”
Though this doesn’t include the cost of labour and overhead, Jones says these costs are usually seen as long-term investments in the US, rather than directly priced into the food.
By this calculation, the 70 yuan-burger common in downtown, American-style restaurants has a mark-up of nearly 86 percent.
Smoothies and milkshakes in health-conscious restaurants are even higher. As they require only local fruit and vegetables, Jones estimates the cost-price at around 3 yuan. With a price of around 30 yuan, 90 percent is mark-up.
Many people are unaware that a lot of imported ingredients don’t cost that much. Jobbins often eats in Western restaurants, and he is puzzled by the high prices.
“I don’t know why it’s quite so much more than local restaurants. I can understand if it’s French wine or some other imported ingredients, but it can’t all be imported,” Jobbins says.
He cites imported beef, as an example, saying “it’s just twice as much as Chinese beef. So instead of 2 yuan for a local patty, imported meat would cost 5 yuan. It doesn’t cost as much as you think. It’s not the imported goods, but the finished product that’s expensive.”
According to Jones, this is due to the “hit and miss” nature of the restaurant industry in Shanghai.
“Restaurants here tend to open one day and close the next, so they want immediate returns,” he says.
Though Munchies is one of very few low-cost Western restaurants, its owner predicts that more businesses will enter this market. As competition stiffens prices will come down.
Chinese consumers are also increasingly interested in Western brands, products and lifestyles. But as Chinese consumers are much more price sensitive, businesses catering to them will be driven to keep prices low.
These businesses often offer less-authentic Western fare, but by following the thrifty local crowd, you can find good low-cost alternatives.
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