Saving for the Future: How Much Does it Cost to Settle Down in China?

Saving for the Future: How Much Does it Cost to Settle Down in China?
Mar 14, 2013 By Kate Williams , eChinacities.com

Let me start by saying that I’m not a certified financial advisor. Far from it, in fact. Nonetheless, after increasingly weighing the possibilities that I’ll be a China expat for quite some time, I’ve started thinking about just how this will affect my personal finances, and how, with my salary and lifestyle here, I’m going to be able to effectively save for the future. This kind of “financial freak out” dawns on pretty much everyone who decides to stay in China for the long haul. Sure, everyone knows that China works great for the short-term expat – lax hours and pocket change are often more than enough to live off of. But what about the long term China expat? How much money do we need to be making here to ensure our future financial stability? How much does it cost to have kids, send them to school and own a house and car? This article will explore the financial implications of settling down in China and offer some food for thought on saving for life’s expenses.

Milestone expenses

Based on personal experience and the current job market, I think it’s safe to say that a large number of expats in China (outliers excluded) are pulling in 10,000-20,000 RMB a month. Most expats find their salary to be quite comfortable and more than adequate to cover their daily living costs. But will it be enough in the long run? To see how these expat salaries measure up, let’s take a look at a few of life’s token “milestones” and what they mean in terms of money here. Be aware, the figures provided are ballpark estimates and do not necessarily reflect the situation in all parts of China (and feel free to post your own experiences in the comments section below).

1) Owning a home
One of life’s greatest achievements is to own your own home. In China, this can mean significant cash outlays. According to Numbeo averages, purchasing an apartment in a major city center is going to run you 13,000-45,000 RMB per square meter, with prices outside the city center being somewhat lower at 8,000-15,000 RMB per square meter. If you’re even the slightest bit tuned in, you know that the real estate market is skyrocketing in China with more and more people putting their earnings into real estate (a lot of speculative buying), thus driving up prices. According to a study done by the Peterson Institute for International Economics in 2011, urban housing stock accounted for a whopping 41 percent of a Chinese household’s wealth, compared to 26 percent in the United States. Although the government has introduced minimum down payment requirements and restrictions on buying multiple homes in an effort to control the situation, the nightmare scenario of this bubble bursting is in question. For the time being, it might be a better choice to continue renting, even with rising rents and the overall hassle of dealing with a landlord. You’ll be thankful if/when the downturn comes.

2) Buying a car
Regardless of scary drivers and insane traffic jams, purchasing a car is something that many long-term expats will seriously consider. Numbeo figures indicate that buying a new VW Golf (or equivalent) will set you back 150,000 RMB. If a luxury brand is what you desire, plan on spending 300,000 RMB at the very minimum. The second hand market is another option, but you won’t get much for less than 100,000 RMB. Another important consideration when buying a car is the cost of licensing and registration. This is particularly important in major cities where automobile plates are auctioned off in limited quantities. To give you an idea of the current situation, The Shanghai Daily reported that Shanghai plate prices soared beyond 80,000 RMB in February 2013 (the highest in history and 8,000 RMB higher than the previous month). There were 9,000 car plates available in both the January and February auctions in Shanghai—the lowest amount since April 2012. Car ownership is not out of reach in China, but it depends on one’s personal situation whether it’s a worthwhile or feasible purchase.

3) Having a baby and providing an education
More and more expats are deciding to give birth and raise their children in China. A former coworker and father of seven explained that the cost of living paired with the opportunities in China were his family’s main motives for staying here. Families looking to give birth in China can expect to spend at least 20,000-30,000 RMB for standard Chinese service. As with everything in China, specialized English-language service will come at a premium and obviously isn’t available everywhere. As far as the child’s education is concerned, there are a variety of options (depending on your location) with varying price tags. The least expensive of these is public school, which costs between 6,000 and 12,000 RMB per year, depending on grade level. The next notch up is a Chinese-run private school with an annual tuition of around 50,000 RMB. Finally, at the top of the price bracket are international schools operating in China with annual tuitions that can exceed 200,000 RMB. If these options aren’t appealing, you can always take matters into your own hands with homeschooling.  

In addition to these milestones, there are a number of other long term expenses which can’t all be covered here. One example is private health insurance—something that some of us may not spend much time thinking about in the short term, but that’s a definite must-have going forward. Another area worth noting is China’s social security system. The Social Insurance Law passed in July 2011 allows foreign workers to enjoy retirement, medical, work injury, unemployment and maternity benefits similar to those for Chinese citizens (more details here).   

Saving money

Now that we’ve laid out a few major expenses, let’s address the ever-looming challenge of saving enough money. When I think about my personal savings in China, I look at the general ‘rules’ for saving in my home country. The first is to set aside at least 6 percent of your pay for retirement. This is really the bare minimum and considering the fact that most of us are missing out on employee contributions here in China, 10-15 percent is likely a more realistic amount to allocate to your golden years. The second ‘rule’ is that one should contribute at least 10 percent of their salary to a general savings account, again another debatable figure. Finally, there is the ever-important emergency fund. Many resources suggest that an emergency fund should cover three to six months of living expenses. Don’t know where to start? Set aside your next work bonus, cash gift, or side job paycheck to kick-start a saving state of mind.   

Perhaps you already know what or how to save, but the question for many is where to house their savings when in China. I’ve met some expats who pay lofty account fees to be able to transfer money back to their home country each month. Of course, these are the same people still paying back car loans on vehicles that have been sitting idle in a garage for years. Who am I to judge? But according to my research, it is best to focus your cash savings on currencies that you have or will have a practical use for. Although moving cash around based on where you think exchange rates are going sounds great, it is regarded as nothing more than gambling. If you are going to be in China for some time, you know that you will have expenses in RMB, and at least a part of your savings should reflect that. As for your retirement savings, that’s a far bigger question than I can tackle, but CNN Money offers some practical advice geared toward expats.    

Making it happen

Settling down in China can be a wonderful decision, but not one that can be made without having your finances in order. The 10,000-20,000 RMB salary that looked pretty good before might not be sounding like much now. While it’s possible to live an incredibly inexpensive life in China, temptations are everywhere. Your apartment, the places you eat and shop, the entertainment you choose, how you get around…these all play an important role in the amount you’re able to save. With the cost of living on the rise in China, a realistic financial plan is essential for those thinking of hunkering down for the long haul. Putting together a simple budget, tracking your spending, and eliminating unnecessary purchases are great ways to get on the path to financial freedom. But thinking and planning for the future are only the beginning; the hard part is turning your plan into reality. Best of luck to you (and me).  
 

Related links
Seal off the Leaks: How to Save Money in China
Minimum Expenses, Maximum Savings: How to Live in China Cheaply
The Pros and Cons of Being a Long-Term China Expat

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3 Comments

All comments are subject to moderation by eChinacities.com staff. Because we wish to encourage healthy and productive dialogue we ask that all comments remain polite, free of profanity or name calling, and relevant to the original post and subsequent discussion. Comments will not be deleted because of the viewpoints they express, only if the mode of expression itself is inappropriate.

Raunchy

one thing you never put in here, is the cost to marry and the cost of the bride Price as now most girls expect from 50,000 to 2 million RMB to buy them before they will even marry you, then if you do pay the money they expect you to give a large chunk of your income to her family or she will divorce you. so endless she is looking for a man for love and not money there is a lot more to look at for living in China believe me i have lived here for almost TEN years

Mar 21, 2013 19:54 Report Abuse

Guest47014

One aspect not mentioned is that commonly in China income is shared as a couple - at least on short term expenses. The other's income will furthermore grow by time, simply due to new opportunities and/or guanxi and/or experience one might bring, that will substantially help. If these figures seem high, especially in comparison to a Chinese household's income, bear in mind that China is not laid out for long-term singles. Yet knowing one will generally earn more than an average Chinese household, financial issues are only a matter of discipline. Thanks for sharing your research!

Mar 21, 2013 05:10 Report Abuse