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Sunday, August 17, 2014 1:55 PM

Brain Drain and Capital Flight: 64% of Wealthy Chinese Plan to Leave China

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Massive pollution, especially unbreathable air, lack of educational opportunities, food, safety, and corruption are some of the reasons behind a recent poll that shows a whopping 64% of wealthy Chinese plan to leave the country.

The Wall Street Journal calls it The Great Chinese Exodus.

Today, China's borders are wide open. Almost anybody who wants a passport can get one. And Chinese nationals are leaving in vast waves: Last year, more than 100 million outbound travelers crossed the frontiers.

Most are tourists who come home. But rapidly growing numbers are college students and the wealthy, and many of them stay away for good. A survey by the Shanghai research firm Hurun Report shows that 64% of China's rich—defined as those with assets of more than $1.6 million—are either emigrating or planning to.

The decision to go is often a mix of push and pull. The elite are discovering that they can buy a comfortable lifestyle at surprisingly affordable prices in places such as California and the Australian Gold Coast, while no amount of money can purchase an escape in China from the immense problems afflicting its urban society: pollution, food safety, a broken education system. The new political era of President Xi Jinping, meanwhile, has created as much anxiety as hope.

First-generation businessmen—the ones who powered China's economic rise—now dream of a secure retirement. That means legal safety in places like the U.S. and Canada.

Last year, the U.S. issued 6,895 visas to Chinese nationals under the EB-5 program, which allows foreigners to live in America if they invest a minimum of $500,000. South Koreans, the next largest group, got only 364 such visas. Canada this year closed down a similar program that had been swamped by Chinese demand.

Beijing makes a crucial distinction between ethnic Chinese who have acquired foreign nationality and those who remain Chinese citizens. The latter category is officially called huaqiao—sojourners. Together, they are viewed as an immensely valuable asset: the students as ambassadors for China, the scientists, engineers, researchers and others as conduits for technology and industrial know-how from the West to propel China's economic modernization.

In 1989, when the Tiananmen Square massacre triggered an outflow of traumatized students and shattered the Party's image among overseas Chinese communities, the Overseas Chinese Affairs Office kicked into high gear with a propaganda campaign to repair the damage. It proved highly successful.

But China's cross-border political activities are creating unease. Consider Australia—one of the most popular destinations for Chinese students, emigrants and tourists, and a country where Mandarin Chinese is now the second-most widely spoken language after English.

"Chinese Australians are being lectured, monitored, organized and policed in Australia on instruction from Beijing as never before," wrote John Fitzgerald of Swinburne University of Technology, one of the country's foremost China experts, in an article published by the Asan Forum, a South Korean think tank.

In the U.S., a vigorous debate has broken out in academic circles about the role on American campuses of Confucius Institutes, which are sponsored by the Chinese government and offer Mandarin-language classes, along with rosy cultural views of China.

China must be exceedingly careful not to leave too many fingerprints on its political activities offshore. For a start, it has an official policy of noninterference in the internal affairs of other countries. But it also puts established overseas Chinese communities at risk by raising the issue of their national loyalties. That is particularly true in Southeast Asia, where the Chinese of a previous era were often viewed with suspicion as a communist fifth column.

Still, the sheer volume of China's outbound travel these days, and its massive economic impact, gives it new leverage. In the global market for high-end real estate, Chinese buying has become a key driver of prices. According to the U.S. National Association of Realtors, Chinese buyers snapped up homes worth $22 billion in the year ending in March.

Australia called a parliamentary inquiry to find out whether local households were being priced out of the market by Chinese money. (The conclusion: not yet.)

The Chinese government has no desire to slow the flow of students. Its attitude is simple: Why not have the Americans or Europeans train our brightest minds if they want to? President Xi's own daughter went to Harvard.

As always with China, the numbers awe. In his memoirs, Zbigniew Brzezinski, the former national security adviser, recalls a meeting between President Jimmy Carter and Deng. Human rights were on Mr. Carter's agenda, and he started needling the Chinese leader about Beijing's tight emigration policies. "Fine. We'll let them go," Deng snapped. "Are you prepared to accept 10 million?"

Not even Deng could have imagined the human torrent his "open door" reforms would eventually unleash. Try 100 million—and counting.
There is much more in the article including a video interview of political scientist James Jiann Hua To by WSJ's Deborah Kan. James To is author of ‘Qiaowu: Extra-Territorial Policies for the Overseas Chinese’, a book on how the Chinese government is using propaganda campaigns abroad to ensure loyalty from overseas Chinese.

At $146, I doubt he sells many copies. Instead, inquiring minds may wish to consider a Q&A on Qiaowu Writing China: James Jiann Hua To, ‘Qiaowu: Extra-Territorial Policies for the Overseas Chinese’.

For a discussion of  the impact of Chinese capital flight on the US housing market, please consider $22 Billion in California Homes Sold to Chinese All-Cash Buyers; "Beginning of Tidal Wave" says NAR Chief Economist.

Mike "Mish" Shedlock

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