Another Bearish China Signal? Expats Starting to Decamp

Sober Look has an intriguing little post up on how expats are leaving China and why that is a bearish portent. Having worked for a Japanese bank during its bubble years (I left a few months before the Nikkei peaked), there was a clear, rapid ramping up of foreign staff in Tokyo and the cutbacks were aggressive when profits fell. It’s not hard to understand why. Most foreign firms are opportunistic and they need to see either strong growth potential and/or high margins to support running an operation with meaningful numbers of workers that they’ve shipped in (expats are expensive: they usually need special housing allowances, trips back to their home country, and employer-paid tax advice to take these postings, particularly since they are risky from a career standpoint. For most companies, they take you out of the mainstream career track, and despite the aggressive talk about how if you do a great job in this outpost, you’ll be on the fast track to promotion, the reverse is usually true: you are out of sight and signicantly out of mind as far as the top brass are concerned. Your contacts outside your company back at home erode due to the distance, which puts you at general career risk. And even though you are developing local contacts (well, actually, maybe, expats often hang out with other expats), if the business promise of your new foreign home fades, the locals are better placed to reposition themselves than you. Even though committed foreign firms try to hire local staff in leadership positions as soon as possible, that’s a difficult task, since natives will (correctly) question their long-term career prospects with a foreign firm, and the foreign firm will require a high level of language competence in its native tongue. As a consequence, the small pool of available “talent” is often bid up.

Sober Look indicates the evidence so far is anecdotal, citing an article in Prospect:

Besides some of the reasons specific to China, expats leaving a nation can be a leading indicator of weaker economic growth. For example the number of expats in Japan apparently also declined in the 90s, although exact numbers are difficult to pinpoint. What is clear however is that a bubble economy often creates unrealistic expectations about future growth, attracting capital and talent. And when the bubble bursts, years of sub-par growth ensue.

Prospect: – When the bubble pops, or in the remote chance that it deflates gradually, the wealth the [China’s Communist] Party gave the people will deflate too. The promise will have been broken. And there’ll still be the medical bills, pensions and school fees. The people will want their money back, or a say in their future, which amounts to a political voice. If they are denied, they will cease to be harmonious.

Expat departures are a lagging indicator, so if this is indeed a trend, it says that foreigners on the ground see that the risk/reward prospects for China have changed and are acting accordingly.

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32 comments

  1. MyLessThanPrimeBeef

    People (both the natives and those from abroad) are less likely to behave responsibly when they have the option to leave if the situation become messy.

    Not sure if that is included in the model for globalism and free-trade.

    1. MyLessThanPrimeBeef

      That’s why you make them cross the Rubicon.

      You go there, you stay there for a while.

      Or you say to them: you made your money in your home country. Now, use that money to help with the situation! We don’t want your billions.

    2. charles 2

      May I remind you that practically all US citizens are descendant of people who exercised that option ? You should respect your ancestors.

  2. bulfinch

    Hey…

    There was a really interesting-looking piece here on Niall Ferguson’s latest Newsweek piece that I was looking forward to reading..? Made coffee for it and everything.

  3. Capo Regime

    Could there be other factors? Issues of FACTA make it hard to open a checking account overseas, taxes are due to increase and as you know filing taxes in U.S. when you are overseas is a major hastle especially in countries with no tax treaties. Could also be that U.S. workers do not add enough to justify the cost of posting them overseas–they may be insourced. Like you worked overseas for a U.S. employer (Russia and Oz) and was struck at how relatively few Americans work overseas (outside of military, did that too and it does not count) relative to Brits, Aussies and even Germans (especially considering population and the fact that most multinationals are at least nominally domiciled in U.S. Have had U.S. friends cut loose from employment (and I lost some opportunities) in Europe as of late americans are too much of a hastle to have on the payroll. We are pariahs in more way than one.

    1. neo-realist

      Unlike Europeans, the cultural chasm may be too great for a lot of Americans to want to work abroad. No Baseball or Football. Soccer is big abroad and while growing in the States, it is not one of the sports that most of the present adult generation came up on as kids. And if there is Pizza, hot dogs, hamburgers and BBQ to be found, its not nearly as good as what they taste at home. Can’t underestimate the simple pleasures of culture for Americans.

    2. M.InTheCity

      I got my British citizenship a few years before FACTA. I try to keep my head down and always list myself as British (uh, with a US accent). I pretty much will never be able to go back to the states to work, considering the myriad of tax laws/Treasury laws I have broken – even though I owe no tax due to having to pay much more in the UK. I find the US government generally comes off as not wanting their citizens to ever leave. And if you do leave you really can’t go back.

    3. bhikshuni

      “Issues of FACTA make it hard to open a checking account overseas, taxes are due to increase and as you know filing taxes in U.S. when you are overseas is a major hastle especially in countries with no tax treaties”

      Not hard at all (in Taiwan or Nepal at least; the rates are good too!) to open a checking account; $10K minimum for IRS reporting requirements for foreign bank accounts. Filing also is not necessarily a “major hassle” but one does need documentation to take the foreign income exclusion and use couriers for filing for proof.

      Maybe big corporation ex-pats are leaving China but I haven’t heard this for smaller retail; my good NZ friend in Taipei runs a huge sector of retail units for Bauer ice skates in China, and business was moving along briskly last time I checked.

    4. Mike G

      I am American but spent most of childhood overseas; these are my personal observations on the expat/culture issue —

      Extraterritorial tax collection is a unique hassle for Americans versus other nationalities. The suspicion bordering on hostility of the USgov toward expats is one factor in my not wanting to go expat again. Other factors are the non-transferability of professional qualifications.

      Culturally, other Western countries are more used to a multinational cultural environment (i.e. heavy American influence in TV/movies/music/fast food) whereas US-born Americans (without an immigrant/ethnic background at least) live with much fewer extranational influences. Add in the attitude of American exceptionalism of a major part of the population where they almost consider themselves a superior and separate species, and I can see how it could be more difficult on average for Americans to adapt culturally to expat life.

  4. Norcal_Steve

    May or may not be true – sober look says the evidence is anecdotal and the prospect article is not about an expat working for a multinational. The author built his own media business and lost it or had it stolen by party linked interests 6 years ago so he moved to a resort area and build a new business and left because he’s sick of Chinese materialism, doesn’t like the Chinese schools for his kids etc. His story is interesting but he’s not part of the expat culture Yves describes. So Yves, your comment might be apt but we have zero real evidence of your thesis from the linked articles.

    I’m disappointed – this is not up to your usual standard of commenting on reportage based on reasonable evidence.

  5. Min

    I am reminded of the old joke in New Mexico about the wise old Indian who said that there would be a long, cold winter. When asked how he knew, he replied, “All the Anglos are gathering firewood.”

    ;)

    Are expats lagging indicators, or harbingers?

  6. Tim

    A friend of mine managed a largish-private equity fund in Beijing. He’s getting out, and advises other people not to come either.

    Met some former expats the other day who felt the same way; they’re back in the States now.

  7. Bert_S

    Just out, and Asian markets down.

    “The HSBC flash PMI ticked up to 47.8 in September from a nine-month low in August of 47.6. Since the index remained below 50, it indicated the sector was still contracting. An output index hit its lowest level in 10 months.”

    It just occurred to me that china was the one doing massive keynesian fiscal “pump priming”.

    Don’t tell me that doesn’t work either?

    This is certainly a bad time for economists everywhere in the world.

  8. Norcal_Steve

    I do understand the point about the departure of the expats. I was sent to Tokyo at the tail end of the Mainframe era and the pay was great with tax equalization, a western sized apartment which was rent free to me but cost the company more than my salary, etc. I was advised to stay no more than 2 years and I stayed 4, which was not a helpful career move, just as Yves describes. It was one thing when the market in Japan was a huge growth target, but once the shine is off that, the negative career effects really outweigh the career value of the overseas assignment.

  9. Zhu Bajie

    Well, I’ve been living in China since 1997 and I have no plans to leave. But I don’t work for a multi-national corporation.

  10. jerry denim

    I’m with the too early to tell crowd. I interviewed for a job in China this past July and had I been offered the job I would be happily employed there now making 3 times my current salary for the exact same position but with more days off and a much higher standard of living. I work as a pilot and couldn’t pass the Chinese 1960’s style astronaut medical, but i would move in a minute as long as they continue to offer the salaries and terms they have now. The company is still actively recruiting expats.

  11. curlydan

    More anecdotal, sample size=1 evidence: the only U.S. expat working in China (for P&G) that I know is moving back this month to the states. P&G is massive in China. If you watch TV there, you’ll flashback to 1970s U.S. TV with the amount of P&G ads you’re hit with.

  12. Mel

    All the rentiers’ reps — the people we have way too many of — are leaving: are you sure “bearish” is the word you want to use? for China?

    Mao starved the whole country trying to trade with Soviet Europe to get industrial development; he didn’t get a smidgen compared with what China has now. A different angle would be that leadership estimates that they’ve got all there is to get from Euro-America, and the time has come to turn around and use it.

  13. bhikshuni

    Taipei reporting 9/20/12 (related to socio-economic rightward trends):

    “Local community petitions foreign workers to leave
    By Loa Iok-sin / Staff reporter

    …Hanging up large banners that read “No to foreign workers in our community,” residents of Rueilian Community (瑞聯社區) in the county’s Bade City (八德) said they did not want the foreign workers from the nearby Ablecome Technology company to stay in the community because of safety concerns….

    Taoyuan County Councilor Lu Lin Hsiao-feng (呂林小鳳), who represents the constituency, denied that residents wanted foreign workers to leave because of racial discrimination.

    “It has nothing to do with discrimination,” she said. “With 460 households and more than 1,000 residents, Rueilian is a peaceful community. They are merely worried that clashes could happen because of these foreign workers, with their different skin color and different culture, going in and out of the community….””

    http://www.taipeitimes.com/News/front/archives/2012/09/20/2003543198

    1. Zhu Bajie

      No surprise. Lots of Americans, Australians, Britons, etc., abroad are arrogant, annoying, xenophobic, racist …. I would avoid many of them back in the US, let alone here.

  14. ebear

    Anecdote ALERT!!!!

    Another piece of the puzzle. A Vancouver realtor I know who deals mainly with PRC clients says business is very slow.

    Note to Mish Stopped Clock. Maybe your long-predicted Canadian RE crash has finally arrived. Maybe.

  15. kaj

    So, what does this post say about the Europeans from “old Europe”,e.g., Germany, Sweden, Denmark, France, Holland and even England returning home from the U.S. say. My European relatives don’t ever want to live here after having seen the working conditions, poverty, inequality and lower level of social services in this country. The U.S. has been “toast” for a long time, and I believe that the expats forecast about China is equally irrelevant.

  16. Polat Guney

    Pedantic note-It is not FACTA (Fair and Accurate Credit Transactions Act) that you are discussing. You are concerned about FATCA (Foreign Account Tax Compliance Act).

    1. monday1929

      I am most concerned about FATCATS.

      ‘Sober Look’ claims it is leading indicator, Yves, you say it is “lagging”?

  17. Raymond Sparrow

    Poor expats. They have just been played around by the company they’ve worked so hard to build. There should have been a contract of some kind or a time period for them to stay in a certain country as well as the purpose of their stay there. After fulfilling their task, they can go back to where they started.

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