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China frets as middle class heads overseas

Publication Date : 25-06-2014


Pointing to the grey skies from her office in Shanghai, Yi Wan, who works for a leading multinational company, said she cannot wait for the day when she and her family can begin a new life under the blue skies in Canada.

The 31-year-old Yi and her husband, who works in the sales department of a Chinese IT company, recently sold one of their two flats in downtown Shanghai to put about the equivalent of US$700,000 in a Canadian investment fund.

Although not so well-off compared with the "Chinese elite", Yi and her family are hinging most of their savings for a "green card" that will give them foreign passports and a new life in their dream country.

"It was the smartest move we have ever made," Yi said. "It is getting much harder now."

Yi's concerns mirror the experiences of several other Chinese families who are finding that the search for greener pastures abroad is getting increasingly difficult in the wake of new rules. Canada, one of the most popular emigration destinations for Chinese people, recently said it was stopping the popular Immigrant Investor Programme that gave green cards to investors who have a minimum net worth of C$1.6 million ($1.5 million) and were ready to invest C$800,000 in the form of a multi-year, interest-free loan to the Canadian government.

Though migrating overseas is not a new phenomenon in China, it is the growing number of middle-class citizens who are contemplating such a move that is vexing policymakers as they fear it would have serious economic repercussions.

The number of Chinese emigrants had risen to 9.34 million by the end of 2013, with the United States, Canada, Australia and New Zealand being the top four destinations, said a report on Chinese international migration in 2014 published by the Center for China and Globalization, a Beijing-based think tank.

The migrant numbers do not include the people who are planning such moves, the report said, adding that the numbers already make China, the fourth-largest country with international emigrants after India, Mexico and Russia.

The report also said that the huge numbers are a cause for concern due to the huge brain and capital drain it involves.

"Most of the prospective migrants from China are middle-class people aged between 35 and 55," it said. "Their departure from China would weaken the middle-class support needed for China's social transformation and also hinder the further progress of reforms and transformation."

But for the middle class, the reasons for a shift are manifold, considering that they have benefited largely from the sweeping social changes, transformation and the economic miracle of China.

Bayandor Farivar, co-founder and CEO of International Investment Alliance, who came to Beijing to promote an immigrant-investor programme, known as EB-5, to Chinese investors, said several reasons, like air pollution, are prompting people to consider other countries.

"Most of my clients say that smog from pollution is a major concern," said Farivar, pointing to the grey skies outside the panoptic window. "Other factors like food safety, better education and employment prospects ... are also on the wish list."

For many others like Yi, it is more a case of taking the step for children, although she doesn't have a baby yet. But the couple are planning to have one in Canada later this year.

"People who plan to migrate to America and those going to European countries definitely have other priorities," said Chen Xi, an immigration lawyer at a US-based law firm.

"Eighty per cent of the Chinese migrants to the US are pursuing such steps for their children and they themselves stay back in China to safeguard their source of wealth. But the others are just following the old adage of getting rich and then getting a foreign passport," Chen said.

Experts said that no matter whether it be clean air, food or wealth, China's middle-class people are concerned over aspects like whether their wealth would diminish due to policy changes or they would lose their social status.

Ren Zhiqiang, a real estate tycoon and an opinion leader, wrote in his microblog that "there are so many reasons for emigration, but the sense of insecurity is one of the important reasons why there is social instability. Only by giving citizens a sense of security can a stable society be achieved".

Chen said that the feeling of this insecurity is also reflected in the way Chinese invest.

"They are not that keen on non-real-estate projects, even though such investments would generate short-term benefits," she said. "Most of the Chinese investors feel that there are far too many uncertainties in such projects."

John Ross, a senior fellow at the Chongyang Institute for Financial Studies, at Renmin University of China, said that the exit of rich people will have little economic impact. It is the same in most countries, he said.

"China creates $4,000 billion a year in capital (compared to $2 trillion in the US). Some people taking a few million dollars out of the country will therefore have no significant impact on China's economy," he said. "Nor will it significantly affect the several hundreds of thousands of Chinese people who are genuinely middle class."

However, it still remains unknown whether such moves will have a long-term economic impact. With more talent heading out of the country, the government has embarked on several programmes to keep its flock together. China launched the "Thousand Talent Programme" in 2009 to bring back top academics, scientists and entrepreneurs.

"We got very good results out of the programme, and we now have talent from all over the world working on a wide range of research technologies, innovation and other perspectives in their respective fields in China," said Xia Yamin, deputy director of Wuhan Eastlake High-tech Development Zone. "These top-level talents with different backgrounds ranging from hi-tech, bio-chemicals to hospitality are injecting new economic vitality into local businesses."

At the same time, China should also adopt a stricter and more rational tax system like the US to keep people from leaving, Ross said.

"At present China's tax system, unlike that of the US, actually condones people leaving the country - that is the tax system is 'unpatriotic' in character. China should therefore adopt a 'patriotic' tax system with the same rational principles as the US," he said.

Lower entry barriers propel emigration

A foreign passport, which was once a costly accessory for the Chinese super rich, is now increasingly within reach for an ordinary family in China, especially as average household wealth booms in the world's second-largest economy, immigration experts told China Daily.

"It was like winning a lottery in the past. Today a foreign passport is no longer a distant dream for a middle-class family, especially as most families can afford the costs due to the higher income they earn," said Tina Hou, managing director of the US-based Civitas Capital, an asset management and financial services firm.

Hou, whose company has been dealing with more than 500 Chinese investors over the past few years, said that foreign passports or permanent foreign residency, which used to be an exclusive for China's high net worth individuals, normally with over $5 million in assets, are now frequently sought after by an expanding China's middle class, a key source of emigrants to the US.

In China, the middle class is a much broader term than it is in Western countries. Experts said it is more defined by looking at people's life-style like the type of the apartment they are living in and whether they have a car, rather than people's income or occupation.

According to Hou, the migration drive is not confined to the first-tier cities in China. A growing number of the prospective migrants are from second- and third-tier cities, he said.

At the same time, the threshold to become a global citizen has been lowered, as cash-strapped European countries like Cyprus and Greece are trying to make money out of their investment visas.

"The Cyprus property-investment programmes are in great demand, because it is easy to get," said Wu Zhan, an immigration consultant at Globe Group, a Beijing-based immigration firm.

To obtain a three-year visa, which allows access to the entire European Union, Cyprus requires prospective investors to purchase property worth at least 300,000 euros ($416,000), according to Wu.

"European countries are going through property turmoil, and the threshold is not very high when you compare the housing prices in Cyprus and those in Beijing. Chinese investors usually make a one-off payment," she said, adding that the prospective emigrants have no need to resort to a mortgage.

Countries like the US have yet to raise the investment threshold for prospective investors and hence are among the most sought-after destinations for the Chinese middle-class.

Earlier reports said that the US is likely to increase the investor-immigration threshold from $500,000 to $850,000 for a green card, after the current immigration act expires in 2015. This is prompting Chinese investors to rush for US green cards, said experts.

"Long waits or not, the US still remains the top destination for Chinese people, because of its vast education resources and tolerance to various cultures," Hou said.


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