Expats in China Grapple With Surging Costs

James Carney, a 27-year-old New Yorker, who’s been living in southern Chinese city Shenzhen for the past 16 months, says he’s feeling the pinch from rising living costs.

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The American expat, who works for a local property developer, says the monthly utility bill for his small one-bedroom apartment has doubled in the last five months.

“Power, water, building management fees — everything you’d associate with renting an apartment has gone up big time — it’s been really noticeable in the last four to five months,” Carney told CNBC.

"Shenzhen cabs are the most expensive in China," he added. "To get in a taxi you’re going to go ten feet [and] it's $13 — if you’re using a private driver, that’s up as well."

While China’s major business centers, Shanghai and Beijing are known to be among the most expensive cities for expats in Asia, the cost of living in other, less well-known Chinese cities is now surging.

The southern Chinese cities of Shenzhen and Guangzhou jumped a whopping 49 and 34 spots respectively to rank 55 and 56 globally this year when it comes to the most expensive places to live for expats, according to a recent survey from human resources consulting firm ECA International. That puts them ahead, in terms of cost of living, of global hubs such as London, which is ranked at 62 and Madrid, which is ranked 83.

Lee Quane, Asian Regional Director at ECA International says the cost of groceries increased by 15 percent in mainland China between March 2011 and the same month this year. The cost of meat and fish went up 12 percent.

“What we’ve seen in the last 12 months has been double digit inflation based on the items in our basket of goods. And that could be partly due to the impact of commodity prices over the course of the last 12 months finally coming through to what’s being sold on the retail shelves,” Quane said.

The rise of the local currencyrenminbi against the euro has also been a big factor behind several Chinese cities overtaking their European counterparts in the rankings, Quane said.

As a result, the cost of posting employees to China has risen significantly for many companies.

The cost of expat packages in Guangzhou has increased by up to 20 percent in the last 12 months, according to Jon Goldstein, Director of Guangzhou Human Resources for the global recruitment agency Michael Page. Goldstein says the higher living costs are forcing companies to give more allowances to foreign talent.

“Because Europe and America are clearly having tough times right now, a lot of businesses are focusing on growth in China,” he added. “The cost is getting expensive, but you still need senior people to run the business here.”

With rents jumping as much as 15 percent in the past year in Guangzhou, salaries for expats have matched that increase, Goldstein said.

An Operations Manager at a French IT consulting firm in Guangzhou, who did not want to be identified, says his firm has cut down on hiring expats in order to be able to afford packages for those they’ve already hired.

“The business has matured that you can replace them [expats] with local staff,” he said. “It’s difficult to find talent, but it’s still cheaper to find Chinese talent and pay them more, than to pay for an expat package.”

Salaries for local staff at the entry or graduate level have jumped nearly 39 percent in the past two years at his firm, according to the operations manager, who says his own rent is up 50 percent since he moved to Guangzhou with his family from London two and half years ago.

While the substantial hike in the cost of living hasn’t had a significant impact on the quality of life for Canadian expatriate Ron Chan, who’s been living in Shanghai for the past four years, he says it does means he’s saving less.

“I am absorbing all the added cost, but my salary definitely is not being raised at the same rate. So at the end, it just equals to less money in the bank,” Chan said.

Chan, who works as an engineer for a publicly traded U.S. semi-conductor firm in Zhangjiang Hi-Tech Park in Pudong, says he’s paying more for everything from daily services to food.

“My hair cut guy probably went from 130 to 155 (yuan) in the past year for a haircut,” he said. That amounts to between $20 and $24.

“Dimsum at one of our favorite places called Fu Lin Xuan, 80 yuan used to fill you up but now we are paying more like 100 -110 yuan.” In dollar terms, that means prices have risen from $15 to $17.

But despite seeing a significant rise in living expenses, expats continue to stream in to China to find work and those already there plan to stay on.

Shenzhen-based American expat Carney says he plans on living in the city for at least the next three years to line up some business prospects. The Guangzhou-based manager of the French firm, who asked to remain anonymous, also plans on staying at least another two years, or longer, if he gets another role with a multinational firm.

Goldstein of Michael Page says the growth and development opportunities in China are a big draw for expats and rising costs have not deterred that trend.

“Every day, you’re seeing more and more small-to-medium size European and U.S. firms opening up here or at least growing in size, growing their R&D centers. To do that, they are sending more expats here,” Goldstein said.

- By CNBC's Rajeshni Naidu-Ghelani