@Xiao Hu,

Thank you for providing those numbers. I agree inflation was higher than normal in the United States 2010 - 2011, but it is currently 1.7 percent. Chinese inflation is lower too now that the economy is slumping: the official statistics used to be over 6 percent and have recently fallen below 3 percent.

So while Chinese banks pay more in interest, the spread between the inflation rate and the interest rate is still greater in China than abroad, and historically has been much greater still. There are alternate indexes of inflation for most currencies (including the United States) and as you point out it can be a matter of opinion, but I don't think it is really honest to assert that inflation in the United States is grossly understated in the same way that Chinese inflation seems to be. My own experience from living here is that inflation is probably around 10 percent, a figure that results in a doubling of the general price level in the course of a decade. When my Chinese friends complain about this stuff, they talk about things like the cost of a bowl of noodles which used to cost 5 RMB in 2006 doubling to over 10 RMB today.

I think to some extent the increased price of housing here in Shenzhen is a result not only of general inflation, but also of an asset bubble as Chinese savers attempt to hedge against the stock market and other investment vehicles and try to find somewhere to put their money that is based in something "real". Also, it is not totally crazy to purchase a house with a 40 year mortgage if you expect the real cost of your monthly payments to halve every 10 years. That said, you are right that savers are losing pace against inflation in both countries and that free chequeing is not unattractive if you do not have a lot in savings.

That said, if the Chinese RMB was freely convertible it is probably safe to say that the currency would fall against the USD as Chinese savers and investors transferred their savings into overseas vehicles which offered a greater return on investment than buying property in China. For all of the endemic problems in Western markets, there are worse issues in Chinese ones. And investors are currently investing in 20 year US Treasury bonds at a loss, so it is actually a good time to be refinancing stuff in the States, and the outlook on the US economy is perhaps not as dire as it might seem.

Thanks for the discussion!