Localizing in China - A Sign of the Times?

I recently had a coworker from the US localize in China. He is the first in our organization - someone from the US who decided that he would benefit more by quitting the US organization and hiring into the China organization (he technically had to quit/rehire as they are separate entities).

This is even bigger than it sounds - instead of being paid the typical US salary in USD with an expense account for overseas expenses, he has opted to get hired at a local salary in RMB with a local benefits package. I don't know for sure, but I believe he probably took about a 15-20% pay cut based on what I know.

Why Would Someone Localize to China?
He did this for 1) the job opportunity and 2) he believes he can save more money here than working back in the US.

Technically I agree he could save a lot of money here - he would be getting very well compensated compared to our local peers and if he can adjust his lifestyle expenses to everyone else's, he should be able to save a higher percentage of his salary.

However, from my viewpoint, adjusting his lifestyle here in China would be a lot more difficult than adjusting your lifestyle expenses back in the US. Here is some of the things coming to mind.

Language Barrier - neither of us speak Mandarin very well. To adjust his expenses he would need to be semi-fluent in the language or it will cost him.

Race - neither of us are of Asian descent. We stand out in China - its harder to negotiate and pay normal prices when you look like a foreigner.

Standard of Living - Living standards are different here. Cars are a luxury (however they are quickly becoming affordable for many), the quality of foods and products is different, and there are quality of life differences - parks, entertainment options, air quality are not the same.
Food Diet - The typical diet here is obviously different from our western fare. Western food is more expensive - sometimes double the price in the US for equivalent food. To adjust to local lifestyle expenses he needs to adjust his diet to 100% Chinese and only eat western food on special occasions. Probably the easiest adjustment for him to make, but for some (like me) this could be a huge challenge.
Health-care - Big differences in the health care systems. He would have medical coverage benefits, but he would have to rely on the local healthcare system. This is probably the riskiest part - if he got a serious injury or illness he would be relying on the local healthcare system for care. Its unclear what happens if he needs care in the US.
Retirement - While not as big a concern, but he won't be contributing to Social Security and he won't be eligible for a 401k.

My co-worker is definitely not crazy; he is young, healthy, and sees enough opportunity that could pay off in a few years. Time will tell if this will be successful for him. He isn't the only one here who has done this - my wife and I just met a young newly-married couple that just relocated and localized here from the US a couple months ago.

There are too many pitfalls here that I wouldn't touch this at this point in my life. However this may be a sign of the coming times - maybe the US will no longer considered the land of opportunity.

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Comments (5)

I'm afraid I don't agree with your analysis of your friend's ability to save money at all with respect to adjusting lifestyle expenses to save money, with exception of your very valid point about western health care. China is a vastly different place and if someone makes a conscious effort to move to China from the US and forego expat benefits, it's pretty clear that their lifestyle priorities are not the same as those who live in the United States: clean air and western-oriented entertainment obviously aren't high up on the list. Buying more things with less money, on the other hand, probably are. Male foreigners also have the added bonus of being able to find dates very easily.

Even with a 10-15% salary cut, he can easily live well below his means in Beijing while maintaining a consumption-oriented lifestyle. Anything approaching an American-level salary vastly outstrips the salaries of your local counterparts; for instance, I make at least five times more than my colleagues who have roughly the same levels of education & experience I have, if not the western-honed analytical abilities. Your friend may not be able to drive a car, but assuming your friend lives in the city area and not out a suburb, taxis everywhere still would add up to be substantially cheaper than the cost of car ownership and insurance.

Same with eating out every day for lunch and dinner -- only the very wealthy or very financially irresponsible do this in America, but here, it is par for the course for foreigners. True, you probably wouldn't want to eat RMB300 steaks from the Ritz-Carlton or other stuffy rich-expat place every day, but you can certainly eat an RMB 30 meal at a sandwich shop or an RMB 50 meal at an Italian place on a daily basis and still have plenty to spare.

If moving from a comparably important big city -- like New York, San Francisco, or L. A. -- your apartment will probably be much nicer for less money.

Based on what I've read on your blog, I'm guessing that your China experience -- with expat benefits and everything -- has probably been pretty cosseted. But living well below your means on an American salary is exceptionally easy in China.

Posted by Pauline | July 7, 2008 3:14 AM

2mill:

now you will probably understand why a lot of my countrymen (from india) are returning! i am sure there are plenty in your company too that are doing this.

- s.b.

Posted by some body | July 7, 2008 10:36 AM

What is the effective and marginal tax rate your friend would have to pay based on his salary? There may be a tax advantage for him. Not having to pay state taxes, social security and medicaid is a benefit as well.

If he is looking to date and eventually settle down with a local lass then this may be a good strategy for him. I take it there is no issue securing a work permit?

-Mike

Posted by Mike Hunt | July 9, 2008 1:21 AM

American salary in China goes alot further there than in the US. This is why a lot of Chinese are returning home after getting their education in the US. In the US, they might get an average salary and start an average lower middle class lifestyle. But in China, they are essentially starting off with jobs that pay about 5 times the median wage which immediately places them into upper middle class.

In terms of health care, one should be able to get high-deductable insurance which is pretty cheap. Let's not forget that some of the countries in the region like Thailand are well known for medical tourism where people get equivelent or better treatement for a small fraction of the US cost.

What kind of opportunities are there for Americans? How hard would it be to land a job if one has no connections through one's current company?

Posted by dc_publius | July 19, 2008 2:36 PM

Simple answer. The World is Flat. :). I was reading on this book by Friedman and am aware of all the controversies going around it.
China may not be due to the job factor but also because your friend thinks of starting some business there?

Posted by Tapan@inquisitiveaboutfinance | August 25, 2008 9:40 PM