Foreigner's Finances comment summary
Austin over at Foreigner's Finances was gracious enough to send some traffic to this site when he interviewed me in his continuing series on people living overseas. The link to my interview is at: Interview with a location-independent family man in China
Now I only recently started following his site so I was a bit behind on his topics. To catch up, I went through all his entries and am now writing a "comment summary" from the perspective of what I've seen in China.
You shouldn't save money like a young Chinese woman
From the western-world point of view, this looks just like the average American consumer about to embark on a life of spending. But if you know more about what's happening in China, the story is not as cut-and-dried. Let's look at the heart of the entry:
The basic assumption in this statement is flawed. In Chinese culture, children always live with their parents. Austin guessed the easy part -- the unmarried live under their parents' roof. The part missing is married women move into their husbands' parents' home. Moving out to start a family is a rare phenomenon. Instead, their parents or grandparents watch over their children while they work. And as time passes, they in turn watch over the elder generations later in life. In effect, life changes often don't alter living expenses. (The only exception is saving for schools -- while the government provides free public education, access to the better schools require either testing in or buying in -- parents may be optimistic but they also are realistic.)
Two other government-driven factors come into play:
Obviously, if a young Chinese female would do additional saving on her own, that would be fabulous. But what would they put their money in? Remember that there is not a long history of investing in China. Compound interest works greats but only if you have the investment options available. China's stock and housing markets are new, schizophrenic and probably in gigantic bubbles due to the government restrictions that funnel an increasing Chinese money supply internally. And savings accounts pay almost no interest while the inflation rate for the past 30 years is nearly 6%. Basically, the only investing the Chinese truly have any faith in is starting a business but that's not something everybody has either the contacts, experience, personality or capital to do.
So with high inflation and lack of investment options, they might as well spend money while it's worth something and while they can enjoy it. For now, the Chinese really don't need practice to switch into ultra-saving mode. Those who don't spend usually come from poorer backgrounds and give money to their parents to help out before they marry off and become part of a different family. Now you (the reader) still shouldn't save like a young Chinese woman because you most likely are a resident of the western-world.
4 Japanese Personal Finance Gripes
Banking in China is similar to Japan. When you open an account, you get a passbook. However, they also sign you up for online access and even give you a USB encryption key. This means no matter how infected your computer gets, hackers cannot steal the USB key to access your accounts. Now online access doesn't really do that much because the economy is still mostly cash. The only value is being able to re-allocate money into sub-accounts -- "checking" where you can withdraw money from an ATM and "savings" where money earns interest but on CD-like schedules instead of daily crediting. Right next to every ATM machine are machines to print fees, withdrawals and automated payments to your passbook.
Credit cards are readily available but acceptance is not widespread. The granny sitting on the street selling vegetables certainly won't accept CCs nor will most of the local merchants. Only those upscale businesses that routinely get out-of-town customers will accept credit card payments. Interestingly enough, my condo developer did accept credit cards so somebody looking for a 2nd home overseas could have plopped their high limit credit card down and bought a place with a swipe of a card. And with little credit card acceptance, debit cards are not every useful. Everybody has an ATM card to withdraw cash -- I can't think of anybody with a debit card.
Change is funny story. There are coins but I have never seen them used except at Guangzhou Metro machines. Paper "coins" also exist but only the largest chain stores will use them. Instead, local merchants always round up goods to the nearest dollar. If you buy some bread and hand them a 10rmb bill, they might give you 3rmb back plus a small cookie. If you buy some medicine at the pharmacy, you'll probably get a few band aids thrown in to pad the bill up.
Cost of the iPhone 3G in rural Japan
Last year, iPhones were not available in China. This meant people either had to go to Hong Kong to buy them or have friends/relatives in other countries buy and waste money on 2-year service plans. This drove prices through the roof to about 10000rmb or nearly $1500. The iPhone 3Gs is now approved for sale in China and sells for about 5500rmb ($800). The price is still high because it is not being subsidized by a phone plan. Buy the phone and then pop in your standard prepaid SIM card.
Comparing grocery prices in Japan to America
To be honest, I have no idea what individual items cost. We buy mostly from street vendors and the food is so cheap I don't even bother keeping track. One time, I made dinner for 3.75 people at a cost of 10rmb ($1.50) -- this included fresh mushrooms, broccoli and fish (talapia). We shop at western-style supermarkets primarily for milk and packaged drinks -- I suspect both are at about U.S. prices.
Do I send money home? Dealing with exchange rates
In the short term, exchange rates are not an issue for moving money back and forth as China pegs the exchange rate using their vast budget surplus. Other countries (Thailand, Britain) have tried to peg their currency before but got overrun by the hedge fund investors (George Soros). Over the long term, the macro-economic pressures cannot be ignored. To fight inflation and to satisfy growing demand for better living conditions, the CNY will appreciate in value. It'll just be done by the government over an extended period little-by-little. This means I have the opposite problem -- I need to bring more money over while I can still get a discount paid for by the Chinese government.
The Japanese post office savings and mail
Not much to comment other than to say there's a China Postal Savings Bank also. Guess Asian countries are big into combining these services although most people prefer China Construction Bank or Agricultural Bank of China due to more ATMs.
Now I only recently started following his site so I was a bit behind on his topics. To catch up, I went through all his entries and am now writing a "comment summary" from the perspective of what I've seen in China.
You shouldn't save money like a young Chinese woman
From the western-world point of view, this looks just like the average American consumer about to embark on a life of spending. But if you know more about what's happening in China, the story is not as cut-and-dried. Let's look at the heart of the entry:
- Many still live with their parents, but probably don't realize they're going to be for a long time because one day they'll have a family of their own but they won't be able to afford it.
The basic assumption in this statement is flawed. In Chinese culture, children always live with their parents. Austin guessed the easy part -- the unmarried live under their parents' roof. The part missing is married women move into their husbands' parents' home. Moving out to start a family is a rare phenomenon. Instead, their parents or grandparents watch over their children while they work. And as time passes, they in turn watch over the elder generations later in life. In effect, life changes often don't alter living expenses. (The only exception is saving for schools -- while the government provides free public education, access to the better schools require either testing in or buying in -- parents may be optimistic but they also are realistic.)
Two other government-driven factors come into play:
- In the past, only men would inherit their parents' assets. But with the 1-child policy, many only-child women will in the long run bring their parents' assets into their marriage.
- The government is doing a lot of saving for everybody by the act of pegging the CNY to the USD. When manufacturers sell goods to the west and earn USD, their deposits get swapped for CNY created on-the-fly. The government then buys U.S. Treasuries with this money. So as long as the economy is export-driven, the government in effect saves 30% for everybody. The money isn't ear-marked for any social-net program -- instead, it's used to keep the economy up at full employment.
Obviously, if a young Chinese female would do additional saving on her own, that would be fabulous. But what would they put their money in? Remember that there is not a long history of investing in China. Compound interest works greats but only if you have the investment options available. China's stock and housing markets are new, schizophrenic and probably in gigantic bubbles due to the government restrictions that funnel an increasing Chinese money supply internally. And savings accounts pay almost no interest while the inflation rate for the past 30 years is nearly 6%. Basically, the only investing the Chinese truly have any faith in is starting a business but that's not something everybody has either the contacts, experience, personality or capital to do.
So with high inflation and lack of investment options, they might as well spend money while it's worth something and while they can enjoy it. For now, the Chinese really don't need practice to switch into ultra-saving mode. Those who don't spend usually come from poorer backgrounds and give money to their parents to help out before they marry off and become part of a different family. Now you (the reader) still shouldn't save like a young Chinese woman because you most likely are a resident of the western-world.
4 Japanese Personal Finance Gripes
Banking in China is similar to Japan. When you open an account, you get a passbook. However, they also sign you up for online access and even give you a USB encryption key. This means no matter how infected your computer gets, hackers cannot steal the USB key to access your accounts. Now online access doesn't really do that much because the economy is still mostly cash. The only value is being able to re-allocate money into sub-accounts -- "checking" where you can withdraw money from an ATM and "savings" where money earns interest but on CD-like schedules instead of daily crediting. Right next to every ATM machine are machines to print fees, withdrawals and automated payments to your passbook.
Credit cards are readily available but acceptance is not widespread. The granny sitting on the street selling vegetables certainly won't accept CCs nor will most of the local merchants. Only those upscale businesses that routinely get out-of-town customers will accept credit card payments. Interestingly enough, my condo developer did accept credit cards so somebody looking for a 2nd home overseas could have plopped their high limit credit card down and bought a place with a swipe of a card. And with little credit card acceptance, debit cards are not every useful. Everybody has an ATM card to withdraw cash -- I can't think of anybody with a debit card.
Change is funny story. There are coins but I have never seen them used except at Guangzhou Metro machines. Paper "coins" also exist but only the largest chain stores will use them. Instead, local merchants always round up goods to the nearest dollar. If you buy some bread and hand them a 10rmb bill, they might give you 3rmb back plus a small cookie. If you buy some medicine at the pharmacy, you'll probably get a few band aids thrown in to pad the bill up.
Cost of the iPhone 3G in rural Japan
Last year, iPhones were not available in China. This meant people either had to go to Hong Kong to buy them or have friends/relatives in other countries buy and waste money on 2-year service plans. This drove prices through the roof to about 10000rmb or nearly $1500. The iPhone 3Gs is now approved for sale in China and sells for about 5500rmb ($800). The price is still high because it is not being subsidized by a phone plan. Buy the phone and then pop in your standard prepaid SIM card.
Comparing grocery prices in Japan to America
To be honest, I have no idea what individual items cost. We buy mostly from street vendors and the food is so cheap I don't even bother keeping track. One time, I made dinner for 3.75 people at a cost of 10rmb ($1.50) -- this included fresh mushrooms, broccoli and fish (talapia). We shop at western-style supermarkets primarily for milk and packaged drinks -- I suspect both are at about U.S. prices.
Do I send money home? Dealing with exchange rates
In the short term, exchange rates are not an issue for moving money back and forth as China pegs the exchange rate using their vast budget surplus. Other countries (Thailand, Britain) have tried to peg their currency before but got overrun by the hedge fund investors (George Soros). Over the long term, the macro-economic pressures cannot be ignored. To fight inflation and to satisfy growing demand for better living conditions, the CNY will appreciate in value. It'll just be done by the government over an extended period little-by-little. This means I have the opposite problem -- I need to bring more money over while I can still get a discount paid for by the Chinese government.
The Japanese post office savings and mail
Not much to comment other than to say there's a China Postal Savings Bank also. Guess Asian countries are big into combining these services although most people prefer China Construction Bank or Agricultural Bank of China due to more ATMs.
Just bought our weekly fresh milk ... 9.60rmb for a quart which comes out to about $5.65 USD for a gallon. Back in San Francisco, we paid $3.69 to $4.29 for a gallon (prices would fluctuate based on bovine moods) so that costs about 40% more in China. Now if we had bought quart cartons instead of gallon jugs, I bet the cost would be closer.
Just bought some fresh fruit. Some fruits like watermelon, grapes, longan cost just as much as in San Francisco. Others like bananas, apples and pears were about 25%-50% cheaper. Of course, fruits like longan, durian, pomelo are not available fresh in the U.S. so the price comparison is skewed.