The Middle Class Feels the Squeeze

Food and fuel prices are forcing Chinese consumers to scrimp

For the Wei family, times should be good. The 41-year-old Wei Bing makes $634 a month teaching computer science at a local university. His wife, 39, makes $986 working at the civil aviation agency, while her parents, who live with them, receive a combined monthly pension of $845. They have their own four-bedroom, 600-sq.-ft. apartment close to key Olympics facilities. From the balcony off their nine-year-old son's room, they can just make out the Bird's Nest stadium where the opening and closing ceremonies will be held.

Nevertheless, the family of five is feeling the squeeze like never before. Monthly living expenditures have doubled from a year ago, to $282. While last year consumer price inflation was 4.8%, it reached 7.1% in January and 8.7% in February—the highest in China in 11 years. "Oil, milk, [and meat]—the price of things that we can't do without—they have all gone up," laments Wei. Pork alone has doubled in price in the last year. Salary increases have not matched inflation, with Wei's wages up only 10% or so over the last three years.

So the Weis are economizing wherever they can. The family is eating less fried food (vegetable oil has more than doubled in price, to almost $10 a cask) and more boiled foods—which are healthier anyway, points out Wei. What about meat? Simple: "We put less inside our dumplings and add more vegetables," says Wei.

With gas prices up, too—they've more than doubled, to 75 cents a liter in the past six years since the family bought their Volkswagen (VLKAY) Jetta—the Weis are trying to drive less. That means fewer trips to the giant Carrefour hypermart that require a 30-minute drive. Now eager to buy a new car (the family has planned this purchase for years), the Weis are considering what was once unthinkable—getting a Japanese model. (Japan's invasion of China in the 1930s has prejudiced some Chinese against Japanese products.) "Originally, I didn't like Japanese cars. But now I'll consider them because they are fuel-efficient," says Wei.

Higher prices for goods made from petroleum products—including toys, clothes, and running shoes—are having an impact. The Weis are wearing their clothing and shoes longer and holding off on new toy purchases. That creates some friction in the family, concedes Wei. "My son likes the brand-name soccer shoes. I keep telling him to wait. Nike (NKE) shoes are pretty expensive—children's shoes are $70 to $85."

It's tough, yet 67-year-old grandfather Huo Bailing offers some perspective. "In the '60s, we weren't afraid of an increase in prices," he says. "There was nothing to buy!"

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