Since its peak at 5,166 on June 12, 2015, the Shanghai Composite Index spiraled out of control to 2,927 (as of August 26, 2015) – a plunge of more than 40% that erased total gains for the entire year. To make matters even worse for the Middle Kingdom, the rapid devaluation of the yuan has also shaken the planet. Within two days in mid-August, the yuan’s value against the dollar fell 4% from 6.2 to more than 6.4. The red curtains of the world’s second largest economy have finally opened, revealing the ugly truth behind the much talked about show, “Capitalism with Chinese Characteristics.”
But what does this all mean for you – the expat living in China earning RMB? With panic in the air and markets falling from New York to New Delhi, there are always concerns, and rightfully so. As an independent expat financial advisor living in Shanghai, I’ve been bombarded with various questions after Black Monday from clients looking to protect their hard earned RMB. Here’s my advice.
Should I exchange my RMB into another currency?
According to an August 24 Bloomberg financial report, “The yuan will fall to 6.5 against the dollar by the end of this year and 6.9 at the end of 2016, bringing it close to a 10% devaluation.” Some in the Chinese banking sector even predict it could reach 1:8 to the US dollar within a year! If these figures prove correct, especially with currency war accusations that the Chinese government is artificially devaluating their currency to boost exports and GDP, then yes, it’s most certainly recommended to exchange a portion of your yuan into pounds, dollars or euros.
What are the best ways to get money out of China?
There are numerous ways to go about this:
1) Invest! (More specifically, invest abroad and NOT in China since experts believe the Chinese stock market is still 15% overvalued). Now, you may be thinking I’m crazy to suggest buying in such a bear market, but if we learned anything from Baron Rothschild, a nobleman of the extremely successful Rothschild banking dynasty, we should “buy when there’s blood in the streets.” In other words, there are loads of bargains out there so you will be getting a discount compared to stock prices months ago. Sure, there’s always a chance that international markets could continue to tumble, but there’s always a bit of risk when investing. (Note: recently, markets in New York and London have seen a slight rally).
Furthermore, investing offshore is even more recommended for expats. For one, you will be converting your RMB into a more stable currency. Second, you will have your money in a financial product that experiences higher average growth rates than banks (interest rates in banks barley keep up with inflation). Third, since you’re a foreigner living in China, you can take advantage of your expat status and get access to these offshore jurisdictions for tax-efficient investments.
There are many financial products available out there that allow you to invest, grow your wealth, and simultaneously get money out of China. Therefore it would be wise to contact a regulated financial advisor who specializes in offshore solutions for expats and have him or her find the most suitable investment options for you.
2) Create an offshore bank account. If you don’t have enough money to invest in a financial product (most financial products require a minimum investment amount), then you may want to consider opening an offshore bank account. Offshore bank accounts are perfect for expats since they allow you to exchange and keep your money in a tax free, secure jurisdiction. Contrary to popular belief, you don’t have to be a multi-millionaire to open an offshore bank account; the process is very similar to opening a bank in your home town (and probably easier than opening one here in China!).
3) Use a currency transferring agency. There are a few companies out there that allow you to convert your RMB into another currency and directly transfer it into your home bank. The process is also easier, quicker, cheaper, and more efficient than going through a Chinese bank.
With a 500 USD per day ceiling when exchanging RMB to USD (or the equivalent in other currencies) at local banks, the fact that transferring money can be mind-numbing when dealing with the authorities, and Chinese banks don’t have the best reputation for security, using a currency transferring agency or offshore bank can eliminate these headaches. For more info, speak with your expat financial advisor to explore options.
How long should I wait?
The longer you wait the worse. As mentioned, it only looks like the RMB will continue to depreciate, so get off the sofa and do it now! Actually, my friend Melyssa experienced this problem by waiting too long. After living in China for many years and accumulating a nice savings in RMB, she has decided to return back to the US next month. The only problem is, instead of converting and transferring her savings before the devaluation, she procrastinated.
When taking into consideration the 4% loss from the devaluation, the high FX fees from converting RMB to dollars via the Chinese bank, and transfer fees, she lost thousands of dollars. If anything, we can learn from her mistake. By following some of the points mentioned, not only can we save our RMB from death by devaluation, but actually increase the value of our earnings over time with smart, tax-efficient investments. The ball’s in your court – don’t say we didn’t warn you!
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Keywords: China devalues yuan China stock market crash
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Financial products? Financial advisor? Offshore account? Currency transferring agency? Open an account at home and send money using Bank of China. Obviously, if you work in China, your home account is an 'offshore account'. You don't need to open an account in the Cayman Islands. Did you just become a financial advisor? A currency transfer agent might be necessary if you must transfer a large sum immediately, but it will be expensive. For all other purposes, BofC is fine.
Sep 05, 2015 09:20 Report Abuse
I'd rather take my chances with RMB thanks very much. The reality is the Chinese economy will continue to grow for the foreseeable future at rates the west could only dream of. Never mistake short term volatility with long term fundamentals.
Sep 04, 2015 13:38 Report Abuse
China has one of the highest debt-to-GDP ratios in the world. The housing market is a bubble waiting to burst. The stock market is in shambles. Many corporations are cash poor. Local governments are in huge amounts of debt. An economic slowdown has been expected for some time. China is going to have to work hard to prevent a hard landing, because this growth is unsustainable. Beijing knows it. If the CCP handles it right, 7% is a miracle this year and you can expect it to be at 6% in 2016, and probably down to 3% by 2020. The RMB is okay, but the Yen, Pound, Euro and Dollar are way better currencies to have.
Sep 10, 2015 13:15 Report Abuse