Financial planning for the Indian expats of China
Written by Joseph Regan on May 03, 2016.
India is one of my favorite countries in the world to visit. Everything from the mosaic of cultures, multitude of religions, illuminated festivals, mouth-watering cuisine, and glorious historical monuments make every trip to the subcontinent a memorable one. I can’t wait for my next trip!
Tens of thousands of Indians live in mainland China, and more and more are migrating to their northeastern neighbor each day. In fact, according to this recent BeijingRelocation.com article, Indians are amongst the top 10 nationalities living in the Middle Kingdom – accounting for 3% (the same percentage of French, Canadians and Germans) of the estimated 600,000 expats. If you count Indian students, this figure is even higher.
I’ve been fortunate enough to work with several Indian passport holders to assist them and their families with their financial planning recently. After hearing many of the same questions and concerns from each of them, I’ve seen a common trend and decided to put everything into writing.
Why should I invest offshore when the bank fixed deposit in India is 9%?
If someone offered me a bank FD of 9%, I would certainly jump at it too! Fixed deposits in my home country (the US) is only about 2%... However, when something seems too good to be true, it usually is. Yes, Indian banks offer a whopping FD rate. But when you take into account India’s inflation rate of nearly 6%, the real returns on bank fixed deposits are a lot less, in the rage of 3%. In periods of high inflation, this amount is even less.
What’s the best way to provide for my family back home?
Many of my Indian clients send money home to their families on a regular basis. With China’s staunch currency control regulations (you can only convert the equivalent of 500 USD per day in China), and governmental bureaucracy when transferring money outside the country, there’s no wonder this is a real concern (and annoyance).
The solution is to set up get an offshore bank account. An offshore bank account allows you to not only send money across the globe easily and securely, it also gives you the opportunity to hold different currencies – a great way to protect against RMB and Rupee inflation.
I would like to send my child to a foreign university, how should I save?
Just like all the other laowai in China, retirement and education fund planning planning is difficult due to government restriction on foreigners. Furthermore, with the high levels of volatility in Chinese markets over 2015 and 2016, it’s probably a good idea to not invest in Chinese stocks anyway.
Luckily, there’s a simple solution to this: follow the steps of other savvy foreigners living in China and use a certified financial planner to invest in global, professionally managed funds outside of China. Problem solved. Plus, by taking advantage of your expat status, you’re eligible for tax efficient investments that you cannot obtain in your home country.
India’s economy is the best performing large economy in the world right now! Even better than China. Why would I want to invest anywhere else???
This is certainly true! India’s GDP grew at a higher rate than China’s, and is projected to continue strong in the upcoming years under President Modi’s economic reforms. Given such good data, there’s no reason you shouldn’t invest in India.
The only thing I would warn against, however, is investing too much in one place. India is still a developing country, and that brings along a lot of volatility. To balance out this risk, it’s most certainly recommended to invest in A) low risk funds, B) diversified investments outside of India, and C) investments in different world currencies.
As an Indian expat living in China, you’re officially a citizen of the world with a whole range of international investments at your finger tips. By taking advantage of this global opportunity, you can successfully build an air-tight financial plan that allows you to diversify your investments geographically and monetarily, provide your children and family with a sound financial future, and, yes, even invest in the booming development of your home country.
If you’re an Indian national faced with the following questions, feel free to drop me a line at firstname.lastname@example.org, or call me at +86 152 2182 4499. I’m sure I can help. Namaste!