China's rich on the move

In 2010, the world was given another sign of the blistering pace of Chinese economic development. That year, according to the “Hurun Rich List”, China boasted the highest number of billionaires in the world.

Yet just a year later, in October 2011, the “Hurun Report” had some not so good news for China. A survey conducted by the “Hurun Report” and the Bank of China showed that 46 per cent of Chinese millionaires – individuals whose net worth exceeded US$1.6 million – were considering leaving China. Moreover, this survey and another conducted by China Merchants Bank and Bain & Company show that the richest Chinese are the most likely to emigrate.

Extremely wealthy Chinese are increasingly taking advantage of the little-known American EB-5 Visa programme, designed to lure foreign investment to the US. Under its provisions, foreigners investing $500,000 or more in a business that creates 10 or more jobs can receive a green card. More than 2,900 Chinese applied for the visa last year, up from 63 in 2006.

The growing interest in investment emigration illustrates the old adage among China’s rich that “nothing is a problem if money can solve it”. In this instance, by enabling the very wealthy to “invest” their way to US citizenship, the money is a solution to Chinese millionaire and billionaire concerns over quality-of-life issues in China.

In the Hurun survey, 60 per cent of respondents said they wished to leave China in search of better educational opportunities for their children. Worries over pollution and food safety were also among the reasons for emigrating. Some also cited concerns over corruption. Government leaders have acknowledged that this is a problem. However, the chief political anxiety of the wealthy stems not from unhappiness with China’s government. Instead, it is driven by growing fear of popular resentment against the rich.

Indeed, in a 2012 Pew Research Centre Global Attitudes Survey of China, 87 per cent of respondents viewed socio-economic inequality to be at least a moderately big problem. And 45 per cent completely agreed and 36 per cent mostly agreed with the statement that “Today, it is true that the rich get richer and the poor get poorer”.

This discontent with, or even hatred of, some rich who like to show off their wealth, are surely fuelling worries among rich Chinese about possible wealth redistribution in the country.

Will this exodus of the wealthy harm China’s economy? One could argue that China may be hurt by capital flight accompanying their departure. However, foreign manufacturers and other businesses continue to see China as an attractive place to set up shop. The continued strong inflows of direct foreign investment will certainly dwarf whatever capital China loses from wealthy Chinese “investing” in US green cards.

But mass emigration of wealthy Chinese, if it indeed comes to pass, poses another problem for China’s economy. Losing such individuals will deprive China of entrepreneurial talent, which is an essential element in ensuring continued rapid economic growth. This impact is unlikely to be offset by any positive gains China could make from emigrants serving as an overseas voice for Chinese businesses. Given both their small numbers and limited scale of investment relative to the size of the US economy, rich Chinese migrants will be a weak lobby group. US policy on matters such as acquisition activity by Chinese companies will still be determined by broader shifts in American public opinion.

Thus China’s increasingly footloose wealth poses yet another challenge. The Chinese government has made enhancing the quality of life, especially with respect to the environment, healthcare and education, a main priority. And greater investments in education and health could also improve the lives of ordinary people, thereby narrowing the widening socio-economic gap fuelling their resentment against the wealthy.

With increasing numbers of rich Chinese already leaving the country or contemplating doing so, getting all of this right will have to be accomplished sooner, not later.

 

The author is an American corporate trainer in China.