Falling yuan causes expat belt tightening

Published:  16 Dec at 6 PM
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Expats working in China are tightening their belts against further depreciation in the value of the yuan.

According to Chinese media reports, the yuan is now at its weakest point against the US dollar since the 2008 financial crash. Expats whose salaries were agreed as late as 2015 are feeling the pinch and are concerned about further falls resulting from the USA’s recent decision to raise its interest rates.

For the last decade or so, China has been an increasingly favoured destination for millennials' sense of adventure, with teaching a popular job in the country’s huge cities. Wages are normally paid in yuan and the majority send regular amounts back to their home country bank accounts. Fluctuations in the exchange rate between the yuan and US dollar can upset savings and relocation plans.

Long-stay expats in China believe depreciation may well get worse, encouraging the motivation for experienced teachers on comparatively low wages to leave the country and go elsewhere to work. Expats paying for larger expenses such as flights, rentals and regular repayments of USA student loans by credit cards on their USA accounts are finding their buying power significantly diminished at the same time as inflation in China’s cities is soaring.

Financial gurus working with expats believe professional expats in higher-end jobs won’t be affected by the plight of the yuan, but expat business owners of restaurants, bars and other smaller enterprises might well find the next several years somewhat of a financial challenge. IFAs are advising their clients to continue building up their overseas accounts rather than relocating in a panic.

The currency fluctuation isn’t expected to become as severe as in some Latin American countries, but there’s no doubt that expats earning average salaries and being paid in the local currency are going to have to adjust their spending priorities. One way to use spare cash rather than sending it home is to purchase an apartment which will increase in value in the medium term, thus compensating for exchange rate losses.

One positive in these worrying times is the fact that expats are not going to wake up to find the yuan has crashed through the floor and is worth a tiny fraction of its previous purchasing power. Chinese government controls on the exchange rate are set at exactly two percent either side of its central parity, meaning no drastic movements can take place whatever the economic circumstances.
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