Posted: 30 Jul 2020 01:06 AM PDT

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Catching FIRE in China

Posted: 30 Jul 2020 06:43 AM PDT

As a long-time FIRE enthusiast living in Shanghai I'm happy to report that I'm starting to see signs that the movement is catching on in China. This recent article by Sixth Tone summarises the situation on the ground quite nicely.

It's still more of an isolated subculture than a movement here. Very few young people will even have heard of FIRE in mainland China and the blocking of Reddit by the government certainly doesn't help. Nevertheless I think the ground is fertile for FIRE to spread (I apologise for the pun/mixed-metaphors) because (1) Chinese people are among the most materalistic and consumeristic in the world, and (2) the local work environment can be particularly oppressive. As the Sixth Tone article points out:

In some ways, FIRE appears a natural extension of a growing counterculture in China, where 80% of employees report feeling overworked, and young people are increasingly pushing back against unreasonable working hours.

There are some important differences in the environment for FIRE compared to the developing world:

Interest rates are still substantially higher than in the West. 5-year Chinese government bond yields are at close to 2.7% compared with less than 0.3% for the equivalent US treasury. Even after rates moved lower this year, I can still put my money in a 3-month money market fund and get a 4% return. Of course you could argue that investors in the Chinese market take on a different and greater set of risks. Equities are a lot less reliable sources of return than in the US and most people put their money in property or bank-issued wealth management products.
Because the cost of basic goods is generally low, a person can live on a pittance even in a major city as long as he/she doesn't splash out on fancy entertainment. In Shanghai, CNY30 a day (about USD4) in groceries could easily and sustainably feed a family of three, as long as they did all the cooking themselves. For some people the biggest costs are actually social obligations, such as giving money at weddings and at funerals, which is hard to escape. When my cousin got married a couple years back, for example, my parents and I gave him CNY20,000 (about USD2,800) as a wedding gift. For average relatives and close friends, you'd have to fork out a few thousand yuan at least. You can sort of see how you might run into liquidity issues if you have several friends or relatives getting married in a single month.
Property prices here are among the most expensive in the world, and especially relative to income. In Shanghai, where I live, price/income is probably between 30-40x. This makes it hard for young people to achieve FI/RE, especially new comers to first or second tier cities who don't stand to inherit or be gifted property from their parents.
The hukou system of household registration makes it hard for families to move around the country to take advantage of lower living costs. SInce social security benefits – the most important of which are education and healthcare – are tied to the city where you are registered, it's hard to move to another city unless you are wealthy enough to be able to afford private hospitals and private schools. This makes it easier for young people without children to embrace lean FIRE but much harder for a family with kids to do so.
The social safety net is a lot less reliable than in most developed economies, so a person would need to save a lot more money to achieve financial independence. Again, quoting the Sixth Tone article:

But China, with its basic social safety net, turbulent markets, and rapidly increasing cost of living, is also a risky place to play with FIRE. "A big illness could cut your savings in half," says Li, the financial blogger.