Are Emigrating Wealthy Chinese Afraid of a Coming Political Tempest?

Recently I blogged about an increasing number of Chinese elites who are emigrating or considering to emigrate, which contrary to conventional thinking, does not augur well or reflect sanguine signs of a “China Century”

I even alluded to snowballing risks of a political crisis

Perhaps many of these Chinese millionaires may be sensing trouble ahead (see bold highlights above), not only from a bubble bust, but also from the growing fragile state of China’s unsustainable capitalist-communist political economy.

Well, I guess my hunches seem to be getting some confirmation.

This from Financial Times/CNBC

In private conversations, many of the people who supposedly make up the ruling elite of China express serious misgivings about the direction and future stability of the country, while admitting that they feel largely powerless to affect meaningful change.

“There is a sense that we are approaching an inevitable breaking point, when the pressures in society will boil over and consume the rulers,” says one Chinese banker with close ties to a number of powerful political families.

“Almost all of the elements are in place for an uprising like we saw in 1989 – corruption is worse today than it was then, people feel they can’t get ahead without political connections, the wealth gap is much bigger and growing and there has been virtually no political reform at all. The only missing ingredient now is a domestic economic crisis.”

And many wealthy Chinese seem to be flocking to the US, by investing in “US citizenship”

From the Wall Street Journal Blog

In 2011, 2,969 Chinese citizens applied for the program and 934 were approved, according to the Immigration Service. (Approval doesn’t mean they get citizenship, it just means they can start the program). Their numbers represented more than three quarters of the total number of applicants and approvals.

It’s also a huge increase from previous years. In 2007, only 270 Chinese citizens applied and only 161 were approved, accounting for only about a third of the totals.

Why the huge increase?

The obvious reason is that China has a lot more millionaires and billionaires.

But the other reason is that these newly rich want out – or at least an escape hatch and presence in another country in case they have to flee.

So speaking of voting with their feet, many wealthy Chinese seem to view the US as having a relatively better potential compared to their homeland. They could be right.

But they could also be wrong. Maybe these Chinese elites don’t realize that they risk jumping from the proverbial frying pan to the fire.

Wealthy Chinese Consider Emigration

Many say that the 21^st Century belongs to China.

While I certainly hope that China will, I am not entirely convinced, especially not if the Chinese themselves seem distrustful of their nation’s future.

This bleak news from the Wall Street Journal, (bold highlights mine)

More than half of China's millionaires are either considering emigrating or have already taken steps to do so, according to a survey that builds on similar findings earlier this year, highlighting worries among the business elite about their quality of life and financial prospects, despite the country's fast-paced growth.

The U.S. is the most popular emigration destination, according to the survey of 980 Chinese people with assets of more than 10 million yuan ($1.6 million) published on Saturday by Bank of China and wealth researcher Hurun Report.

While growth has slowed, China's economic performance is still the envy of the Western world: It registered annual gross domestic product growth of 9.1% in the third quarter, and the International Monetary Fund has forecast growth of 9.5% for all of 2011.

Concerns are mounting, however, that China's growth could be derailed by a raft of problems, including high inflation, a bubbly real-estate sector and a sharp slowdown in external demand.

Many Chinese who have profited most from the country's growth also express increasing concerns in private about social issues such as China's one-child policy, food safety, pollution, corruption, poor schooling, and a weak legal system.

Rupert Hoogewerf, the founder and publisher of Hurun Report, said the most common reason cited by respondents who were emigrating was their children's education, followed by a desire for better medical treatment, and the fear of pollution in China.

"There's also an element of insurance being taken out here," he said, citing concerns about the economic and political environment.

He cautioned, though, that it was unclear if the survey results signaled capital flight as many high-net-worth individuals who were emigrating also said they were keeping much of their money invested in China.

China maintains capital controls that make it hard for rich Chinese to move their money out of the country, but there are substantial loopholes in the system.

Some economists say they have detected signs of large capital outflows in recent months, likely driven by a decline in global risk appetite and expectations of slower yuan appreciation.

A research report from Bank of America Merrill Lynch's strategy team in Hong Kong last month cited "hot-money outflows" as one of four systemic risks that could lead to a hard landing for China's economy. It said that a sign of such outflows were record gambling revenue in the gambling enclave of Macau, a former Portuguese colony near Hong Kong, where many mainland Chinese go to gamble.

In another indication of the jittery mood among China's rich, several Western embassies have also noted a marked increase this year in the number of applications for investment visas, a category that allows people to immigrate if they invest a certain amount of money, according to diplomats.

There is evidence, too, of an uptick in the number of Chinese people buying high-end properties in major Western cities, especially London, Sydney and New York, according to property analysts.

The recent economic success experienced by China has mainly been due to her embrace of globalization.

However, deepening tensions brought upon by rapidly expanding bottom-up economic forces has apparently come into conflict with the rigid political priorities of the China’s government aimed at the preservation of the incumbent structure.

And because of the attendant fear of social disorder arising from an economic bust, which may upset the current political balance, China’s political authorities have careened towards adapting short sighted Keynesian policies that has resulted to an inflating bubble economy that risks a massive bust, possibly in the near future.

Perhaps many of these Chinese millionaires may be sensing trouble ahead (see bold highlights above), not only from a bubble bust, but also from the growing fragile state of China’s unsustainable capitalist-communist political economy.

Yet, a substantial exodus from many of China’s productive sectors will likely put further strain on such tenuous relationship.

This is not to say that a China Century may not be ahead, instead this is to say that China must ultimately depend on market forces to determine the economic direction than rely on temporary nostrums from political diktat that only hastens erosion of the current political economic framework.

Eventually China’s political leadership will have to decide either to cope up with the swift and material changes in her economy or to revert to the old China model of a closed society. The success or failure of the goal of a China Century, thus, depends on the political choices taken.