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Published 23 August 2012 07:05, Updated 24 August 2012 05:53
Money moves ... Some experts fear the steady stream of wealthy Chinese leaving their homeland could precipitate a liquidity crunch for the country’s banking system. Photo: AFP
China has a million millionaires and many of them want out. But some observers fear the exodus could have serious implications for the country’s banking system.
The BBC has brought the issue back to the fore with a look at how wealthy Chinese are capitalising on a US visa-linked investment scheme to get out of their homeland, while others are setting their sights on new residences elsewhere in the Asia-Pacific region.
Among them is Shanghai-based Louie Huang, who’s stumped up for the right to live in Singapore, telling the BBC “Most of [my wealthy friends] think I’ve got so much money here but one day maybe the government will change the policies and take it all back”.
Huang isn’t alone. According to the recent GroupM Knowledge – Hurun Wealth Report 2012, more than 16 per cent of China’s millionaires have already emigrated or submitted immigration applications, while 44 per cent have plans to emigrate or submit applications in the near future.
The Beeb runs some numbers on how this is reflected in US EB-5 visa scheme, which shows the way in which the often reported exodus of rich and mega rich individuals and families from China is ramping up. The EB-5 scheme offers visas to immigrants with at least $US500,000 to invest in the US economy and green cards to those who show their investments generated at least 10 jobs.
“In 2006 Chinese national were granted just 64 visas under the scheme. Last year the figure had leapt to more than 2408 and this year it is already above the 3700,” the BBC says.
Australia is also picking up new Chinese residents by the buckload, with immigration from the country overtaking immigration from the UK for the first time in 2011, and with a number of high-profile Chinese billionaires already holding Australian citizenship.
So, what does this mean? According to Northwestern University assistant professor of Political Science, Victor Shih, it could spell serious trouble for China’s banking system.
Picking up on the BBC’s story, website Also Sprach Analyst shares a clip of Shih chatting with INET economist Daniel Neilson after last year’s Bretton Woods Conference.<iframe width=”646” height=”397” src=”http://www.youtube.com/embed/jP4AvxwP5To” frameborder=”0” allowfullscreen></iframe>
Shih’s theory is that a capital outflow of about $US1 trillion from China would cause massive liquidity problems for China’s banking system, which is loaded up with long-term loans that are frequently rolled over because they’re not paid back.
Shih estimates that the top 1 per cent of urban households in China hold between $US2 trillion and $US5 trillion of wealth.
“If there were sizeable outflows from the smart money, ie. the ones who are in the top 1 per cent, the other 9 per cent in the top 10 per cent will also want to move their money out,” Shih tells Neilson. “And that represents also a sizeable block of money.”
Also Sprach Analyst points out that there’s a shift already under way, although it emphasises that doesn’t mean there’s a potentially catastrophic flight of capital yet, if one ever emerges.
“That shift might be happening already (albeit rather slowly), as manifested in the slow but consistent money outflow away from China since late last year, which, as we said, is already tightening liquidity in the banking system which necessitates multiple rounds of liquidity injection in China,” Also Sprach’s Hong Kong-based editor writes.
You can read the paper Shih presented at Bretton Woods in 2011 here.