Stick with the green bills?

June 20, 2009 5:01 AM

I'm from the United States, and have an expatriation package to work and live in China. Should I be paid in the local currency, RMB, or with the US dollar? The Chinese people are saying I should be paid in RMB because the US dollar is "unstable"....

When I sent an email about it, HR's response really was how the US dollar is "unstable" so it's maybe in my best interest to be paid in RMB, and then if I want to convert to USD I do it on my own. But what about taxes? Is it complicated? I don't know anything!

For the most part I don't spend any money cause everything's covered by work for housing, travel, and essentials and I just use some RMB here and there that I take out of a Bank of America account (no withdrawal fee with a specific Chinese bank, just the conversion charge), so don't really see a need to be paid all in RMB.

I know I can allot some of it to be paid in RMB, and the other portion in USD, but given how the strength of the dollar is today and maybe for the next two or three or whatever years, any idea if one over the other comes out ahead in the long run after being converted?

At the end, it's my choice but I don't know what to do!

posted by Jimmie to work & money (16 comments total)

Unless you have a strong indication that one of the currencies is going to have a significant drop in value (and I'd be very skeptical about such claims) it makes most sense to be paid in the currency that you are going to spend -- avoiding doing your own conversions altogether if possible.

As far as predicting the future currency values, I'd look for a broad consensus of published experts. This is still far from a sure thing, but I would put no stock in the opinions of those whose only source of info is media commentators (in either country)
posted by winston at 5:17 AM on June 20

Among those who predicted the economic crash, it is expected that the dollar will drop. E.g. Chris Martenson and Peter Schiff. But if the dollar drops significantly your company would probably try to reduce your wage anyway, so getting paid in the currency that you are going to spend is preferable in both short term and long term.
posted by flif at 5:28 AM on June 20

Assume that you will not get your RMB out of China. (You can, but only a percentage, and only after significant hassle) The company is trying to convince you out of their own self interest. If they pay you in USD, they have fewer USD to work with (except by going through further hassle with the gov't).

If you're worried about the dollar, there are different ways to hedge it.
posted by FuManchu at 5:29 AM on June 20 [1 favorite has favorites]

To clarify a little, your perspective is very different than those who are advising you. If they buy USD as an investment, while paying the bills in RMB, and the value of the USD goes down by 5% or 10%, that's a disaster for them.

But the price of goods and services in the USA doesn't not fluctuate in lock-step with the exchange rate, of course. If you are going to be paying the bills in USD, then a drop in the value of the USD has far less effect on you than on somebody who is going to exchange it for another currency before using it pay the rent.

This means that getting paid in the currency you're spending has a huge effect on mitigating your risk, while the possibility of timing the market is much smaller. If the value of the USD drops 10%, then yes you could have had 10% more USD if you were paid in RMB and exchanged after the drop . But the value to you of the USD (measured by it's usefulness in buying stuff) has not decreased by as much 10%.

(disclaimer: I'm nowhere near qualified to provide professional advice)
posted by winston at 5:32 AM on June 20

If you are going to be earning in excess of the exemption amount for expatriates, you may have USD tax liability to the IRS but no USD to pay it. I don't know those rules well, but check into it -- could be awkward...
posted by MattD at 5:36 AM on June 20

Long term American ex-pat here, currently living in London. Be very careful with some of the comments upthread, as the important points aren't being raised.

Most important - are you going on a local contract? Or are you a US employee who has been seconded to a Chinese subsidiary?

If you are on a secondment then you should retain some US earnings to cover FICA contributions and, most importantly, your 401K plan. I did this for the first four years of my ex-pat career, and it pays off tremendously, especially so the 401K contributions.

You'll also have to find out from HR what their policy about rebalancing is. For example, you may decide to take 25% of your earnings in US dollars and the remainder in local currency. If the US dollar sharply appreciates in value you could increase the US dollar payout ratio and by doing so increase your local currency takehome. The opposite situation clearly applies as well. I was with Deutsche Bank at the time and they allowed me to rebalance twice per year.

If you are on a local contract AND IF they are offering the option to be paid in US dollars still find out how often you can rebalance and what rate they will be using. Again, you can manipulate your local currency payout / takehome substantially this way. Again my employer at the time allowed me to rebalance semiannually, and guaranteed a conversion rate.

Finally, you will owe US taxes on housing and other benefits. I suggest that you talk to a CPA before you leave as the IRS has markedly changed (i.e., increased) the rate of taxation on these benefits in kind.

Back in 2005 (IIRC) when they rolled out these changes a number of ex-pats I knew dropped onto local contracts, as they were much worse off by getting these benefits them having to pay taxes on them.

Keep in mind for many multinationals the housing is dirt cheap, but you'll be assed full market value. If you get a two bedroom / two bath in a corporate compound / apartment building owned and operated by your employer, the IRS will tax you on full market rental rate.

Probably the best thing you can do is speak with a specialist, CPA, etc, ASAP. When I first started working abroad I insisted on this, my employer hooked me up with KPMG and paid for it.
posted by Mutant at 5:39 AM on June 20 [9 favorites has favorites]

Listen to Mutant. That's the only serious discussion of the relevant legal issues I've seen thus far, and his advice to talk to a qualified professional really is on point.

Something else to consider though: the "instability" of the dollar isn't the only thing going on here. The other huge consideration is that the Chinese government does not really permit the RMB to "float" contra other currencies, particularly the dollar. It's more or less pegged; less now than a few years ago, but there's a sense among some economists--and certainly among many US politicians--that the RMB is still significantly undervalued. That link's a little old, but it's illustrative of the sorts of things people with reason to do so worry about the RMB.

The implication here is that you're trying to deal with not only normal, as-good-as-random currency fluctuations, you're also trying to account for the as-good-as-arbitrary actions of a notoriously secretive authoritarian government.

Good luck with that.
posted by valkyryn at 7:10 AM on June 20

Mutant has better specific advice, but this is my general advice:

Moving money between countries is itself costly - you will have to pay fees, and you never get the full value (because buy and sell prices are set to advantage the banks/money changers). I recently had an American scholarship to cover research in the UK, but I ended up using up savings there instead of moving the USD. I came out better (because the USD went down in value), but also because I didn't pay any commission on moving the money or converting it. Instead, I left it in the American account it had been deposited to, and came back to have essentially transferred the UK savings to the US without moving anything.

So I would advise you to get the money you need in whatever country you are spending it in, if possible. Get RMB for spending in country, but if you were planning on banking large amounts of your salary in the US, get that in USD. As pointed out upthread, it will also be handy for paying taxes, etc.
posted by jb at 7:24 AM on June 20

Sorry, that should have been, "Get some RMB for spending in country".
posted by jb at 7:25 AM on June 20

I'm thirding Mutant's comments.

From your post I take it you are an American citizen. Therefore, you will be subject to taxes on income you earn abroad, less a possible minimum if China has a tax treaty with the United States. I have no idea if it does, and I have no idea how being paid in one currency as opposed to another affects your tax liabilities in the United States.

I would seek counsel, specifically from a CPA of your own choosing, who is well-versed in this arcane area of US tax law. Do not choose a CPA referred to you by your company unless you trust your company to do the right thing by you. Do not go to a general tax preparation service like H&R Block; this is a service for which you want to pay a premium.

Finally, if you don't understand what the CPA is telling you ask him lots of questions, and, if not satisfied, find another one.
posted by dfriedman at 7:25 AM on June 20

Re valkyryn's point: basically, the Chinese government has been accused of manipulating its currency, so the question of whether it is more "stable" as opposed to the unmanipulated USD is open.
posted by dfriedman at 7:27 AM on June 20

The USD is allowed to fluctuate in value relative to other currencies whereas the RMB is not. That is what is meant by manipulation. What the Fed does is not really pertinent to the question of demand for USD relative to demand for other currencies.
posted by dfriedman at 7:43 AM on June 20

I think most people here are saying "utility is king". A few other factors that impact the "utility" of getting more or less in USD vs. RMB are : your age, your personal wealth, likelihood of lay offs, your parents wealth, closeness with family, etc. You can obviously afford a larger speculative investment in RMB if you are only 25 and likely to inherit a house from mom & dad than if you are 60 and have blown your money on SUVs & swimming pools. You should clearly learn about the subtleties Mutant mentioned.
posted by jeffburdges at 7:55 AM on June 20

then yes you could have had 10% more USD if you were paid in RMB and exchanged after the drop

While there the yuan has a bias towards strengthening against the dollar there's also the risk of exchange lock-out in the future; the weaker the dollar gets the dearer it will be to the official money exchangers.

Since the poster thanks to his full-ride expat package doesn't have exposure to the USD weakening the answer to this question depends on how likely he is to remain in the PRC for a long time.

If he is 50% certain of settling there then taking 50% of his income in RMB might be prudent, given the general and expected future trend of the yuan, but Mutant's tax implication advisements are well-made.

Historically, the situation is somewhat similar to Japan pre-Plaza Accords, where the yen was at 320 to the dollar and a few years later was down to 150. That decimated USD-holders living in Japan, and I think a similar move WRT China is quite likely given the relative purchasing powers and trade imbalance between the two economies.
posted by @troy at 8:26 AM on June 20

Here's a site that discusses the process of repatriating RMB into USD. They claim all taxed income can be converted, but that certainly wasn't the case a few years ago. Note the enormous number of forms, long waiting times, and limited locations to do this. If you are missing any receipts or forms, you're screwed.

If you're concerned about the RMB:USD rate, buy the CYB ETF.

I think people are over-hyping the need to see a CPA. You would only really need one if your income is high enough to need one. China taxes are allowed to be claimed as deductions. Unless you're making over $80k a year on top of your reimbursed expenses, you don't have much reason to worry.

Again, this is simply the company trying to push you into accepting something that is better and easier for them.
posted by FuManchu at 8:28 AM on June 20

There's a very basic point that a lot of people are not hitting on here:

everything's covered by work for housing, travel, and essentials and I just use some RMB here and there...

If that is the case and:

a) You are essentially saving your salary while you are working in China;
b) You have the option of being paid in USD;
c) And you are planning to re-patriate,

...then I would elect to have the vast majority of my salary paid in USD. I would leave enough in the local currency to cover daily living and whatever taxes you will need to pay locally (ask HR). China and other closed currency systems are one of the few situations where I think USD is a good idea.
posted by DarlingBri at 3:55 PM on June 20