Chinese Entrepreneurs Are Leaving China

[jimmy olsen]

Minsky, Mono what do you think of this?

http://blogs.forbes.com/gordonchang/2011/06/05/chinese-entrepreneurs-are-leaving-china/

Gordon G. Chang
New Asia

Chinese Entrepreneurs Are Leaving China
Jun. 5 2011 - 10:16 pm | 18,326 views | 0

China's rich, primarily driven by a sense of insecurity, are taking money out of their country.  Many are actually preparing to move elsewhere.

According to a new study, almost 60% of China's "high net worth individuals," defined as those possessing more than 10 million yuan in investable assets, are either considering emigration through investment programs or are completing the emigration process.  The survey, conducted by China Merchants Bank and Bain & Co., also reports that 27% of those with more than 100 million yuan in investable assets have already emigrated and 47% of them are thinking about leaving the Motherland.



The stunning results correspond to reports that the U.S. Treasury unit monitoring illegal money flows has, since the beginning of last summer, detected a surge in hidden cash transfers out of China.

Almost all of the funds supporting emigration applications were spirited out of China in violation of Beijing's strict rules.  The country leads the world in illicit fund transfers, according to Global Financial Integrity, a nonprofit.  The estimated total of China's outbound flows from 2000 to 2008 was a staggering $2.18 trillion.

The flood of "hot money" leaving China picked up in the last quarter of 2008.  That was when the Chinese central government announced its stimulus plan, which initiated a new phase in the partial renationalization of the economy.  Then, Premier Wen Jiabao started pouring state cash into the state sector and state financial institutions began diverting credit to state-sponsored infrastructure.  As a result of the stimulus program, about 95% of China's growth in 2009 was attributable to investment, and almost all of the investment had come from the state.  The percentage for 2010 will not be too far off of that.

Beijing's plan, however, was good for private entrepreneurs who, although shut out of many portions of the economy by state enterprises, rode the resulting asset bubbles to even greater wealth.  The number of the country's high net worth individuals according to the China Merchants-Bain study will reach 585,000 this year, almost double the figure for 2008.

The emigration of China's wealthy has, not surprisingly, triggered controversy.  "We have been working hard to develop the economy in the past 30 years, but now these elite members of society are fleeing with the majority of the wealth," said economic analyst Zhong Dajun to the Global Times, the Communist Party-run newspaper.  "The loss may be even higher than all the foreign investment we have attracted.  It is as if, when the time of harvest comes, we find the fruits have all gone to others' baskets."  Zhong should not be shocked.  Beijing, since 2008, has been targeting private entrepreneurs and abusing them even more than usual, so it is natural they are now trying to protect themselves from a rapacious state.

And the situation is bound to get even worse if Xi Jinping becomes the next Party general secretary at the end of next year, as just about everyone expects.  Xi will undoubtedly bring his fellow "princelings" into positions of political power.

The princelings, descendents of former leaders of the People's Republic, will surely use their new political clout to consolidate their grip on the economy.  This means, among other things, that others, especially owners of private domestic enterprises, will have even fewer opportunities than they do today.

"We can only hope the rich people stay out of patriotism," says Xia Xueluan of Peking University.  Patriotism, these days, may be the only thing keeping Chinese entrepreneurs in China.

And, from the look of things, it is not enough.  The country's wealthy are going on shopping tours for U.S. real estate and, if they have not done so already, are moving their families abroad.  There has, in the last five years, been a 73% increase in Chinese investment immigrants to the United States.  Countries, like Canada, are raising their minimum investment requirements for investment-immigrant candidates due to the sheer size of the tide of Chinese cash.

Chinese cash is largely responsible for the third wave of buying from Asia into Vancouver.  In an "unprecedented" surge of business for brokerages in that city in February, Chinese buyers snapped up homes, townhouses, and condominiums as sales skyrocketed 70% over the preceding month.

As foreigners pour into China, China's entrepreneurs are taking their money out.  Which group do you think knows more about what is going on?

[CountDeMoney]

Minsky, Mono what do you think of this?

Why would that cheap commie Jew care? Or Minsky, for that matter?

There has, in the last five years, been a 73% increase in Chinese investment immigrants to the United States.

Percentages don't say anything.  What's the actual figure?

Chinese cash is largely responsible for the third wave of buying from Asia into Vancouver.  In an "unprecedented" surge of business for brokerages in that city in February, Chinese buyers snapped up homes, townhouses, and condominiums as sales skyrocketed 70% over the preceding month.

But are they living there?  Or are they just investments like so many empty residential buildings in the Chinese coastal cities?

Your article sucks, Timmay.  It says nothing.

[Monoriu]

This is nothing new.  Chinese have a long tradition of moving abroad.  You can find Chinese communities and Chinese restaurants in almost every country on earth.  They move overseas, then move back.  Heck, I have done it myself.  They do it for a huge variety of reasons.  Because they broke the law in making their fortune.  Because they genuinely want a better education for their children.  Because they made too many enemies in China.  Because they hate the congestion in China.  Because they want to diversify their portfolio. 

And the part about the princelings getting more power if Xi becomes party secretary is utter crap.  They already have a lot of power. 

[Camerus]

What Mono said.

The authour of that article, BtW, is part of the semi-hysterical "China is about to collapse!" cottage industry of publications, which have predicated around 100,000 of the past 0 collapses in the Chinese system over the past 2 decades. He wrote a book about 10 years ago called The Coming Collapse of China.  So the tone of the article is not surprising.

[Josquius]

What Mono said.

The authour of that article, BtW, is part of the semi-hysterical "China is about to collapse!" cottage industry of publications, which have predicated around 100,000 of the past 0 collapses in the Chinese system over the past 2 decades. He wrote a book about 10 years ago called The Coming Collapse of China.  So the tone of the article is not surprising.

Heh, I've got that book, picked it up for 50p in a charity shop. Surprised he's still in business.

[jimmy olsen]

What Mono said.

The authour of that article, BtW, is part of the semi-hysterical "China is about to collapse!" cottage industry of publications, which have predicated around 100,000 of the past 0 collapses in the Chinese system over the past 2 decades.

Sounds like they're due then.

[The Minsky Moment]

There's probably something to the idea that people with money that either don't have the "right" connections or whose connections lose out in factional infighting take the view that future prospects are limited and move on.  To what extent that explains these statistics, no way to tell.

I would not be quite as blase as Mono about it, b/c while it is true there is a long tradition of Chinese entrepeneur emigration, in the past that usually occurred when prospects overseas were more attratice than on the mainland.  But with mainland China growing in double digits, there really should be a surplus of good business opportunities at home. 

[Admiral Yi]

I would think the biggest driver would be uncertainty about property rights.  Individual wealth is a new phenomenon in China, and there's no track record to indicate that the state will leave your money alone.

[Jacob]

It's a lifestyle thing too. At least if the wealthy entrepeneur friend of my in-laws who's moving to Canada is anything to go by.

[Admiral Yi]

It's a lifestyle thing too. At least if the wealthy entrepeneur friend of my in-laws who's moving to Canada is anything to go by.

Is that code for white pussy? 

[The Minsky Moment]

I would think the biggest driver would be uncertainty about property rights.  Individual wealth is a new phenomenon in China, and there's no track record to indicate that the state will leave your money alone.

I don't think that the problem is exactly that; it is unlikely that the authorities would revoke existing property rights as principal beneficiaries of those rights are senior party officials and their families.

But private property doesn't mean exactly the same thing in China as it does in the capitalist west.  For example, in the west to own shares of stock means to own a piece of the company, and is accompanied by a complex set of fiduciary obligations by manager-agents and the board to run the company in the interests of shareholders.  In China, however, this rich legal structure doesn't exist in the same way.  Most of the big traded companies are controlled by arms of the state and therefore the party.  These companies are not run for the benefit of shareholders but to pursue party-related agendas.

A recent example from the latest issue of Caixin Weekly (great publication, strongly recommend):
The province of Sichuan decided to raise capital from institutional investors to fund road development.  They formed a company - Sichuan Expressway- and sold million of dollars of bonds.  The bonds were secured by Sichuan Expressway's ownership of a large equity stake in an existing, lucrative toll road.  But once the investors committed their money, the provincial government secretly transferred the toll road stake from the Sichuan Expressway to a newly formed telecom company also controlled by the province.  The bondholders only found out when the transfer was presented for their approval after it had closed and could not be revoked.  This practice is apparently fairly common in local government finance.

[Admiral Yi]

I don't think that the problem is exactly that; it is unlikely that the authorities would revoke existing property rights as principal beneficiaries of those rights are senior party officials and their families.

I'm not talking about a wholesale elimination of the right to own assets, I'm talking about arbitrary expropriation a la Putin's Russia.

[Jacob]

Is that code for white pussy?

Nah, it's code for better air, less oppressive government, less corruption and organized crime to deal with to do business, and prospects of an easier and better education for the kid. That and a good bolt-hole should things go to hell in China.

In this particular case the Sichuan earthquake is also a motivator, though since they are coming to Vancouver I'm not sure it makes that much sense.

[Jacob]

I'm not talking about a wholesale elimination of the right to own assets, I'm talking about arbitrary expropriation a la Putin's Russia.

Yeah, that's what I'd worry about as well were I in China. Most people keep their heads down and want to make money, but everyone's aware that things can go to hell. Most of the Chinese who are very rich are the same generation as my in-laws or older. They've all experienced the cultural revolution, so they have a pretty good idea of how horrible things can get. It only makes sense to have a back-up plan.

[Josquius]

A recent example from the latest issue of Caixin Weekly (great publication, strongly recommend):
The province of Sichuan decided to raise capital from institutional investors to fund road development.  They formed a company - Sichuan Expressway- and sold million of dollars of bonds.  The bonds were secured by Sichuan Expressway's ownership of a large equity stake in an existing, lucrative toll road.  But once the investors committed their money, the provincial government secretly transferred the toll road stake from the Sichuan Expressway to a newly formed telecom company also controlled by the province.  The bondholders only found out when the transfer was presented for their approval after it had closed and could not be revoked.  This practice is apparently fairly common in local government finance.
       

This sounds like the sort of thing a sneaky crook can get away with once before retiring to a tropical island with his money, not standard practice. How is it standard practice?- don't the Chinese know 'Fool me once, shame on you. Fool me twice, shame on me'? Why do they keep investing?

Is that code for white pussy?

Nah, it's code for better air, less oppressive government, less corruption and organized crime to deal with to do business, and prospects of an easier and better education for the kid. That and a good bolt-hole should things go to hell in China.

In this particular case the Sichuan earthquake is also a motivator, though since they are coming to Vancouver I'm not sure it makes that much sense.

Earthquake in a western country: Call out the international emergency services. Every death is a tragedy!
Earthquake in a poor country: Bodybag companies are making good money.