Over the last three decades, China’s emerging business class has received a significant level of attention in both academic and popular discourse. Many theorists have identified the upwardly mobile bourgeoisie as the historical agent of liberalization, suggesting that as China’s business elites grow in number and economic, they are likely to press the regime for political reform and opening. This question is increasingly important amidst the growing accumulation of wealth by high net worth individuals (HNWIs) – who have investable assets valued at $1 million — and ultra high net worth individuals (UHNWIs) – with assets valued at $30 million. Such individuals are growing in absolute numbers and command a rising share of China’s national GDP. Bain and Company (2013) shows that China’s total number of HNWIs (with over 10 million RMB in assets) grew from 300,000 in 2008 to 700,000 at the close of 2012, with the number expected to rise to 840,000 in 2013. The value of investable assets held by HNWIs increased from 9 trillion RMB in 2008 to an estimated 27 trillion RMB in 2013, when China’s total GDP was nearly 57 trillion RMB.
In contrast to expectations of a liberalizing business class, recent research has found that that wealthy entrepreneurs in China are, if anything, the group most loyal and intimately-connected to the Communist Part of China (CPC) party-state apparatus. Because they have disproportionately benefited materially from China’s development and see the CPC act a protector of their domestic business operations (against popular unrest and redistributive demands from China’s working class), HNWIs are inclined to support the regime, rather than confronting it or demanding radical political reform. In fact, a political opening in China might well run counter to their material interests, as the state would be under greater pressure to respond to the redistributive demands of China’s working class majority. As noted by Jonathan Unger, despite some examples of white-collar protests centered on cadre corruption, land seizures, and environmental pollution, “the Chinese educated middle class has become a bulwark of the current regime,” conservative in its outlook, concerned with material gains and supportive of the political status quo.
Recent trends, however, challenge the notion of the enduring loyalty of China’s business class, as growing number of China’s wealthiest citizens have, instead of challenging the regime, voted with their feet, exiting China to seek citizenship elsewhere and increasingly shifting their assets to overseas locations. Emigration from China has been accelerating over the last decade. From 1990 to 2000, China’s net emigration averaged 143,000 citizens per year. Between 2000 and 2010, this number increased to a loss of 418,000 Chinese citizens each year. Of those, 2.02 million have settled in the United States, followed by Canada (896,000), South Korea (657,000), Japan (655,000), Australia (547,000), and Singapore (457,000). A 2014 survey of 2,000 Chinese nationals valued at over $1.5 million by Barclays found that 47 percent of respondents plan to emigrate from the country within the next five years. A survey of 980 HNWIs conducted by the Hurun Report and Visas Consulting Group (2014) found that an even higher number — over 60 percent — intended to leave the country.Enjoying this article? Click here to subscribe for full access. Just $5 a month.
The primary reasons motivating them to leave the country include the desire to secure better educational opportunities (21 percent), and escape persistent quality of life issues in China such as environmental pollution (20 percent), food safety (19 percent), social welfare (15 percent), and poor healthcare (11 percent). These factors were trailed by economic issues such as asset security (8 percent) or tax concerns (1 percent).
Aside from surveys that show a significant intent to leave China among HNWIs, the extent of emigration of Chinese HNWIs can also be observed with the group’s growing participation in immigrant investor programs offered by a number of countries. These offer permanent residence to foreign nationals who demonstrate a high level of personal wealth and invest a set amount of capital in the local economy – usually $500,000 to $1.5 million, and/or creating a minimum number of local jobs. Chinese nationals made up over 85 percent of applications to the U.S. EB-5 program in 2014, 76 percent of the 59,000 applications received for the Canadian Immigrant Investor program, and 91 percent of the 1,679 applications submitted for the Australian Significant Investor Visa program between 2012 and 2015.
China’s growing rate of net emigration, the low return rate of its students studying abroad, and the growing number of Chinese HNWIs applying for immigrant investor programs in foreign countries suggests that despite the great attention given to China’s haigui – ethnic Chinese returnees from abroad seeking to participate in China’s growing economy – China has nevertheless on balance continued to be a leading sender of international migrants.
Chinese HNWIs have become increasingly effective at eluding efforts by the Chinese state to control and limit capital flows. A 2012 report by Global Financial Integrity, a Washington-based think tank, found that the Chinese economy had lost $3.79 trillion from illicit financial outflows during 2000 to 2011. China’s HNWIs have developed an array of methods for eluding state-led capital controls. According to Global Financial Integrity, trade mispricing (or trade misinvoicing) is the single largest component of recorded illicit financial outflows, making up 54 percent of all illicit flows in the developing world from 2000 to 2009. The practice involves individuals or firms “understating their exports and over-reporting their imports. They may, for example, sell $1,000-worth of goods abroad, show an invoice for $800, and keep the remainder overseas.” This mechanism alone accounted for $3.2 trillion (86.2 percent) of the total $3.79 trillion in illegal financial outflows from China from 2000 to 2011.
These trends – China’s growing number of wealthy financial emigres, its growing brain drain to Western countries, and its growing loss of capital through illegal financial outflows – challenge our expectations of China’s future. China’s emerging capitalist class is neither challenging the political status quo nor working to bolster it. The CPC is thus freed from the challenge of a potentially assertive capitalist class but also challenged by the economic drain of losing a substantial portion of its national wealth and talent.
A long-form version of this article, “The Flight of the Affluent in Contemporary China: Exit, Voice, Loyalty, and the Problem of Wealth Drain,” was recently published in Asian Survey, Vol. 56 No. 4, July/August 2016; (pp. 629-650).
Steve Hess is an Associate Professor of Political Science and East Asia and Pacific Rim Studies at the University of Bridgeport. His primary research interests include contentious politics in authoritarian regimes and Chinese foreign policy in Africa. He is the author of two recent books, Authoritarian Landscapes: Popular Mobilization and the Institutional Sources of Resilience in Nondemocracies and Charting the Roots of Anti-Chinese Populism in Africa (co-authored with Richard Aidoo).