by Toffler



Banks, Money, and Taxes

China is almost totally a cash-based society. This is particularly true in rural and western China where they lack the banking infrastructure to process any kind of transactions other than cash. This is slightly less true in Shanghai. As a society so heavily reliant upon cash, a number of things amuse or annoy me:

  • Why do the banks have such short hours?! Yesterday I rushed from work to HSBC to try to get there by 6pm so that I could get enough money to pay my rent. However, my effort was in vain…they close at 5pm. I complained to the manager, what good does it do anyone who works a normal schedule for the bank to be open from 9-5 and NOT issue ATM cards? He told me to come at lunch. I was like, if I had that kind of flexibility in my schedule, don’t you think I would. Then he said if you’re a Premier customer we may be able to help you on the weekends. Well, I’m not. But I complained, HSBC in HK is open on weekends to all customers, why not in China. Seriously mister, this is China, you can’t be paying your staff that much money so just pay a few of them to stay an hour longer. I figured it was just an evil attempt by HSBC to keep my money a little longer until… So learning my lesson from yesterday when I needed to go get cash from my ATM (and chose the location where the ATM is only open when the bank is open) I made sure to get there before 5pm. However, this bank closes at 4:30pm and is Not open on weekends either! How do people function in an economy where they must have cash but the banks aren’t open convenient enough hours to provide it to them and where some banks don’t issue ATM cards?
  • People carrying around giant wads of cash. Although I’ve seen it in Mainland China, the most poignant example I can give is when I worked in the hotel in HK. Mainland Chinese tourists would come in and pay for their rooms in cash (perhaps because they didn’t have credit cards). When a room costs about US$250 per night and someone is staying for (for example) 5 nights plus tax and service charge that comes out to about US$1500. When the largest bill in Chinese Yuan is approx US$10, that’s a lot of Yuan! To be exact, that would about 120 paper notes! I don’t know if you’ve ever held that many paper notes at one time but try simulating it with regular paper sometime to find out how thick that is. Then imagine these nouveau-riche Chinese men carrying around Louis-Vuitton men’s purses filled with stacks and stacks of Yuan in them. To go from the ridiculous to the sublime, now imagine a not very rich Chinese man (or woman) carrying around that much money in a plastic grocery sack.
  • They check every single CNY50 or CNY100 for the embedded security features. As if it was worth every counterfeiter’s effort to copy approx US$6 notes, every single person (except foreigners) checks in detail–and under a blacklight, if possible–every single RMB50 or 100 note. When someone hands over the kind of cash discussed in the previous paragraph this is a very long and tedious process. As if that weren’t enough,
  • They count multiple times, with machines and by hand, to check that there are indeed that many bills. When the Chinese man paid in for his JW room in cash the entire process took at least 20min because of the checking and recounting. This morning when I went to pay my rent (not only did I need my passport and I don’t know why) the woman machine-counted my 34 notes twice, then proceeded to hand-count them again as if the fact that I’d counted them, my roommate had counted them, and the machine had counted them twice was not good enough for her.

My reason for writing all of this is to point out the ridiculousness of it and to suggest maybe the Chinese government can design, print, and circulate a note larger than RMB100. It seems to me it would save everyone a lot of trouble from the counting to checking multiple bills for validity to not having to carry so dang many notes around. Or perhaps they can just extend the banking infrastructure and institute a system like Hong Kong’s Octopus Card or at least make the country more credit card friendly.

Last night as I was having dinner with some fellow USC alums, he asked me if I wanted the receipt and I responded, no, why do I care about the receipt? Rarely are you given a receipt unless you ask for it. In restaurants when you ask for a receipt it actually means you’re given scratch cards totaling the amount of your bill. You scratch the end of the paper and most of the time it says ‘Thank you;’ however, I received one in which I won RMB5 and I’ve heard of someone else receiving RMB20. You simply return this to the restaurant and they give you the money. Hey fantastic for me, free money! Someone recently explained to me the purpose behind receipts in restaurants. It’s a way for the government to actually track the restaurant’s revenue and collect taxes from it. I’m not entirely sure how the system works but in a economy so much based on cash (and to some extend evading taxes), it seems to work. The customer wants the possibility of receiving free money so they ask for the scratch receipts, the government then knows approx how much their bill was, and then the company pays taxes on that amount. It’s really an ingenious system if you ask me.

However, this is not the reason the guy last night at dinner asked me if I wanted the receipt. He was not so excited to scratch the receipt himself; he had another reason. He explained to me that as foreigners living in China (and legally employed with a work visa and residence permit) any money we spend in the country, whether for rent, food, dry cleaning, taxis, even plane tickets back to our home country (presumably bought a local travel agency) can be applied to reduce our taxable income by that amount. If you figure the average foreigner here spends at least 75-90% of their income (because really there’s not much to save and when converted back to our home currency any savings would be so little it’s just not worth the sacrifices in lifestyle we’d make here) then that spending amounts to a fairly sizeable reduction in taxable income. Hey, I thought that’s crazy but that could seriously lighten the tax burden for any expat when we start getting a percentage back for each Starbucks we drink. 😉 I’m not sure why the government does this, perhaps to encourage foreigners to spend here and support consumption in the domestic economy but also to reduce the stress on the pegged exchange rate if all the foreigners started exchanging their money.

It seems there’s no sales tax here, nor any bed tax (for example, on hotel stays in HK). Attempting to explain sales tax or a bed tax to hotel employees who’ve never left the country was definitely a challenge.

If the country could establish a more omnipresent banking system it would reduce the need for such things as the scratch receipts to track restaurants’ taxable revenue because more people would use credit cards. And of course this would apply to stores/shops as well when they start accepting credit cards. Now, even places that accept credit cards may charge the customer extra for using a credit card (especially on small purchases) because the store will not only have to pay the credit card processing fee but also tax on the revenue (because the credit card transaction is traceable by the govt).

Banking, money, and taxes in China, what a complicated situation. Just hope HSBC will give me an ATM card next year…


  1. Luke |

    I’m starting to experience the benefits and drawbacks of dealing with cash, because I can’t justify the cost of setting up a debit/credit card merchant account.

    So far it’s pretty manageable, but Monday was a $400 day, and I’m still carrying the day’s earnings around in a #10 envelope. I don’t want to deposit the money in the bank and then withdraw it later (inevitably, when I need to buy groceries or a new pair of shoes), because my bank charges me every time I use the ATM.

    I’ll have to deposit it sometime, though. It’s going to add up faster than I can spend it, so I figure that after a while, the small cost of making an ATM deposit would outweigh the risk of somebody reading my comment on your blog and mugging me for my month’s earnings in a dark alley behind a tavern.

  2. Micah |

    The receipts are so restaurants pay their taxes. The restaurants buy booklets of the tickets from the government office, and then they have to use them up as customers demand them. If they refuse to give them, the customers call the tax office and report the business for not paying their taxes.

    That’s why sometimes when you buy things you’ll get a cheaper price by asking for no receipt, because then the restaurant/shop saves on not buying the booklets or tax receipts from the government office.

So, what do you think ?