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Sixty percent of China’s rich want to leave the country

About 60 percent of the rich Chinese people, each of whom has a net asset of at least 60 million yuan ($9.44 million), said they intended to migrate from China, a report has found.

About 14 percent of them have either already migrated from China or have applied for migration.

-China Daily

Victor Shih (@vshih2) noticed this article and tweeted it, surprised that China Daily would deign to print it.

Here’s the chart.

Wouldn’t this fit with his story regarding Chinese capital flight? In April, I highlighted his theory on the fragile state of China’s FX reserves. The bullet points are as follows:

  • China has three structural causes of capital flight. First, wealth in China is highly concentrated. Using three different methodologies based on survey data, data on large share holders of listed company, and data on the total financial and real estate assets in China, the wealthiest 1% urban households command between 2 and 5 trillion USD in wealth.
  • A 20% reallocation of this wealth overseas would cause a substantial but likely controllable drainage of China’s foreign exchange reserve.
  • A 30-40% reallocation of this wealth overseas would see the depletion of China’s foreign exchange reserve by close to 1 trillion USD or more.
  • Second, underground banks, false trade invoicing, and now an experimental scheme to allow individual investors to invest overseas provide multiple channels for capital to circumvent China’s exchange control.
  • Third, real deposit interest rates are negative and will remain so in the foreseeable future, thus prompting wealthy households to speculate overseas on a large scale if relative returns suddenly decrease in China.
  • If the top 1% of households in China reallocates 1 trillion USD of their wealth overseas, the central bank then will be faced with a choice between large scale quantitative easing and an illiquid banking system.
  • In the short term, China’s only recourse to reduce the volatile state of its foreign exchange reserve is to bring real interest rates back to positive territory.

This does bear watching. Hopefully, Dr. Shih will have a post up on this at some point.

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

6 Comments

  1. Joel says:

    Those charts show why Vancouver’s (and Toronto’s to a lesser extent) housing market is so expensive. Almost as many Chinese intent to immigrate to Canada as the U.S. They primarily invest in real estate and Vancouver is the location of choice (proximity, large diaspora and good education system).

    • David Lazarus says:

      It was also assisted by a big increase in the run up to the handover to the Chinese of Hong Kong. Vancouver was the destination of choice for Hong Kong citizens. Its investment requirements were lower than other nations and now that helps explains the reason why Vancouver is high in the ratings now with a large chinese community already.

  2. Oldrich says:

    Wow ! Extremely eye opening ! Not that I was so naive to believe it but this is a great antidote to some of the raving eulogies of the “Chinese miracle” I have read in the past years. This shows the true feelings of those “who made it” to their country…. I made a buck and now let’s get the hell out of paradise… Economic success ? Maybe… Good place to live… ?

  3. fuguez says:

    This was not on my radar at all. I read a tweet about conditions nearing adequacy for the CB to look at floating the yuan. In a way I guess a similar thing happened in Russia

  4. Australia does not want this hot money.

    It distorts the property market and this is an issue with voters. We did accept a lot of Japanese investment decades ago, but that was corporate. If tourism from PRC picks up we may have a similar investment cycle, catering to the desires of Han and other Chinese.

    London took a lot of hot Russians. Was that a success?