Wealth Management: A home away from home

China's wealthy are spreading their wings — and their wealth — overseas more enthusiastically than ever. Some countries are making it easier for them to do so, although others are having to take steps to stem the tide. But wherever the millions of new citizens settle, it is property that they want, as Ellen Sheng writes.

  • 15 Dec 2014
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China has always been a country of emigrants. In the past, poor Chinese moved to Malaysia, Singapore and elsewhere, seeking a better life and richer opportunities.

Nowadays people don't have to leave China to become rich — they can do it well enough at home. But there's a difference, says Stuart Leckie, chairman of Stirling Finance, an independent research and consulting firm focusing on the pension fund and asset management industry in Hong Kong and China. "Now it's not the poor who are leaving China, but the rich."

A recent survey by Barclays found that almost half of China’s wealthy are thinking about relocating to a developed market within the next five years. Having made their fortune, they like the idea of securing better education and job opportunities for their children. According to the Hurun Report Chinese Luxury Consumer Survey, 64% of China’s millionaires have already emigrated or are in the process of applying to emigrate.

The UN’s International Migration Report for 2013 found that the number of migrants from China increased from 4.1m to 9.3m since 1990. This is happening even while China’s economic growth has improved some aspects of life for millions — at a cost. Rich Chinese now worry more than ever about the quality of what they breathe and what they eat. And they fret about the security of their assets.

“They want their assets offshore and their children to receive a western education," says Halena Ng, executive director of Fraser Harris Group, a wealth management firm in Hong Kong. "They’re insecure with their wealth in China.”

China requires its citizens to report wealth worldwide, notes Reaz Jafri, partner and head of immigration (US and Asia) at Withers, a law firm. So far these rules have not been enforced, but Jafri reckons it's only a matter of time before they are.Reaz Jafri, Withers

The current anti-graft frenzy may play a part. “Some may have got wealthy through means other than fair and are not keen to be investigated,” says Leckie.

Today’s Chinese immigrants are most likely to be the families of wealthy businessmen or Chinese government officials. While Communist party officials are banned from holding dual passports, their families are not.

In January 2014 a report by the International Consortium of Investigative Journalists caused a stir internationally when it concluded that the families of top Chinese officials had extensive holdings of wealth in offshore companies. The family of disgraced Chonqing Communist party chief Bo Xilai has been estimated to have more than $160m overseas, including a villa in the French Riviera, near Cannes.

Not done roaming

Private bankers say this trend of emigrating and moving assets offshore is nothing new. While President Xi Jinping’s crackdown on corruption has shone a spotlight on wealth, bankers say wealthy Chinese have been planning their escape for the last 10 to 15 years.

Hong Kong is commonly used as the first jumping-off point. Permanent residency can be easily obtained through the capital investment entry scheme, which requires putting at least HK$10m ($1.3m) into permissible investments, including stocks or bonds. Hong Kong is also popular because it is convenient. For those who are still running businesses in mainland China, the SAR is close enough to allow them to go back and forth easily.

Further afield, the US remains the top destination for wealthy Chinese, as well as other English-speaking countries such as Australia, the UK, Canada or Singapore. In the last 10 years, about one million Chinese have obtained permanent resident status in Canada or the US. Chinese are also the largest immigrant group in Australia.

Big cities are the obvious destination, says Stirling’s Leckie. “Someone who emigrates from China is not going to be living on a farm. They’re going to be in a city with a Chinatown with a Chinese newspaper and television and everything they need.”

Mainland Chinese now make up the majority of applicants to various visa programmes in the US, Australia, Canada and the UK. They account for 85% of applicants to the popular EB-5 visa programme in the US, which requires applicants to invest between $500,000 and $1,000,000 in a business.

Some 80%-90% of Canadian investment visa applicants are from China, 90% of Australian investment visa applicants, 50% of UK Tier 1 investment visa applications and 85% of Portugal’s Golden Visa applicants.

Mark Lanning, WithersJafri at Withers notes that the increase in demand has led to countries stepping up such programmes. Mark Lanning, director of immigration at Withers, agrees. "There was not much interest in the EB-5 visa in 2006, but now it's become a very important initiative to attract global investments," he says.

Bottlenecks

Interest may have soared, but the number of visas hasn't always kept up. The result is fierce competition. Ng at Fraser Harris says that Mainland Chinese who can afford to do so will file applications with more than one country.

The US issued 32,825 immigrant visas to mainland-born Chinese in 2013, compared with 29,467 in 2004, according to the US State Department. That doesn’t include investor visas such as the EB-5.

In Australia, PRC Chinese were the second largest source of immigrants between 2012 and 2013, totalling 27,395 people.

The huge demand has created long backlogs. Hong Kong’s capital investment entry scheme programme used to take about four or five months. Now it's more often a year. To try to cope, governments have either raised requirements or shut down programmes altogether.

Australia recently introduced a Platinum programme for wealthy Chinese wanting to obtain citizenship. It shortens the time applicants need to have spent in Australia, but it requires them to invest in venture funds. Australia also has the Significant Investor Visa programme – offering a passport to those willing to invest A$5m ($4.2m) into a qualifying investment fund. This has proved popular with wealthy Chinese, who make up 90% of approved applicants.

On the flipside, in February Canada scrapped its popular immigrant investor programme, which offered visas to people with at least C$1.6m ($1.4m) in assets and who were willing to invest C$800,000 for five years. The government also put an end to the entrepreneur programme, which gave citizenship to people who planned to own and manage a business in Canada.

Let's stay physical

Unsurprisingly, given concerns over the security of wealth, physical assets remain the most popular way for wealthy Chinese to spread their wealth overseas. Some 43.4% of those surveyed by Hurun said real estate was their main overseas investment. Fixed income and equities came in a distant second and third place, respectively. Alternative investments such as jewellery, watches and art made up another 8.4%.

“Even if something happens, fixed assets are always there,” says Ng. Stocks could become as worthless as wallpaper overnight.

It certainly makes sense for wealthy individuals planning an overseas move to buy a second residence. In favoured cities such as Hong Kong, San Francisco or Vancouver, the flood of Chinese capital has raised property prices significantly, creating friction with local buyers because prices have become decoupled from local wages.

In Vancouver, the influx of thousands of investor immigrants from China has driven up city-wide home values by 35% in the last few years. The price of a single family home is now about C$1.2m, while the number of homes in the C$2m-C$5m range has risen about 50% since 2009.

Those who can afford it also put money into fixed assets such as shopping malls or hotels. According to a report by Knight Frank, a global real estate consultancy, Chinese buyers have bought 27 vineyards in the Gironde region of France, making up 15% of the area of vineyards sold.

Hotels have become popular investments for Chinese in the US, the most high profile being the sale of the Waldorf Astoria hotel in Manhattan to Anbang Insurance Group. Some look at the string of acquisitions in the sector and are reminded of the Japanese property acquisitions in the 1980s.

Investments in commercial properties have the added benefit of qualifying as an investment that can be used as part of the application process for citizenship.

One thing is for sure: there’s room for far more overseas investment. On average, wealthy Chinese invest only 16% of their total assets overseas, according to Hurun. More than 70% invest less than 20% of their assets overseas and only 8% have put more than 50% of their assets outside China.

According to Chinese government statistics from 2012, 6,000 Chinese investors established 22,000 directly-invested enterprises in 179 countries and regions in 2012, investing a total of $87.8bn. Of this total, $10bn went into the financial sector and the rest into non-financial investments. 

  • 15 Dec 2014

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