China’s Rich Are Moving Out—What Does This Mean for China’s Future?

"To get rich is glorious," former Chinese leader Deng Xiaoping reportedly said in the early 1990s as he pushed China towards a market economy. Now it seems many of China's rich are thinking that leaving China would be glorious, too.

Summary from The Christian Science Monitor:

A report just published by Bain and Company, an international consultancy, finds that almost 60 percent of China’s wealthiest individuals are thinking of leaving the country: They have either secured permanent resident status abroad or are considering it.

Bain estimates that the number of “high net worth individuals,” seeking immigrant investor status abroad—essentially buying foreign residence rights with large investments under government programs—has risen by 73 percent over the past five years

Why are the rich leaving China?

I spoke on the phone with Li Ding, the Deputy Editor-in-Chief for Chinascope. He and his team have been researching and translating articles on the topic from Chinese-language media. Here is his analysis:

I can think of a couple reasons why rich people in China are moving out of the country.

One reason is really a lack of trust in the future of China. And I’m talking about the legit people who are making their wealth in a legal way. They grow their wealth in China and now they’ve decided not to stay in the country but to leave. This is a reflection of the many problems in China, like social instability, environmental problems, and potential risks investors are facing when they want to invest in this country. Many of those aspects are increasing the cost of investing in China and making money. This is one reason.

And the second reason—also a very important reason—is the political system. So far, China is still a one-party regime. So private wealth is not really protected. Although the constitution says this, it is not really protected. The Communist Party can take away your personal assets, your personal wealth overnight—easily. And of course there is no rule of law. The law cannot protect your personal wealth. So they are afraid. Maybe one day something happens, maybe they anger some official, and their wealth is gone and they can be thrown in jail. And we have seen quite a few of these kind of cases happen before.

[The reason they come to the West] is that the social system is good. People have freedom, their wealth is protected by law, and the society is really stable. So they can get a basic sense of security living there.

What does this suggest for China’s future?

Li Ding says that with so many people leaving China, it will have a major impact on China’s economic growth.

The consequence of this can be very serious. Maybe one or two rich people moving out of the country is not a problem. But if it becomes a trend—and I’m afraid it has—think about it. The rich people make money from the country, and then they move the money out of the country. So what is left in the country? [Their] businesses and economic activities support the growth of the country. If they remove the money and the related business out of the country, the economic growth cannot be sustained. So it is creating a very big problem for the future—the near future, I’m afraid—of China’s economic growth.

The government always wants to maintain a high growth rate. But think about it: If people are making their choice with their feet—they make money and they’re gone—then how can [China] sustain its growth? It’s impossible.

Maybe 10 years ago, people thought, “Hey we still have a lot of opportunity in China, so let’s invest and put money into China.” But right now, after the 2008 and 2009 financial crisis, the trend is gradually reversing. So people are thinking about investing into countries where the political system is more stable.

They see the Middle East crisis, and that in one-party or authoritarian regimes this kind of social crisis can easily happen. So why should I put my money into such a risky environment? Why shouldn’t I invest in a freer society? So this trend is gradually reversing.

Not as many people as before are considering investing into China. And the story that rich people are moving out of China is a reflection of that. People are leaving. If they still see a lot of opportunity there, why are they choosing to leave China?

1 Comment

Filed under Economy

One response to “China’s Rich Are Moving Out—What Does This Mean for China’s Future?

  1. commentor

    Same can be said of westerners buying homes and investing in china….

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