Uncertain of Rights, Entrepreneurs Fleeing China

A study released on Monday reports that a majority of wealthy individuals and entrepreneurs in the People’s Republic of China have considered leaving the country. According to the report, released by the China Merchant Bank and Bain & Co, more than 60% of China’s “High Net Worth” individuals – those with more than 10 Million Yuan net worth – have either considered emigrating or have already initiated the process. The number is even higher for those with net worth over 100 million Yuan – 74% of them have either started the process of leaving China already or are considering leaving. The investor immigration policies of many western countries make emigration relatively easy for such individuals. This surge of emigration has corresponded with a surge of investment capital leaving the country, often illegally.

North American countries, with stronger property rights protections, have been a major beneficiary of this emigration. The United States has seen a 73% increase in Chinese investor immigration in the last five years, while the flow into Canada has been strong enough to cause the government to raise the minimum capital required for investor-class immigrants. In Vancouver, a major destination for Chinese investor immigrants, the sale of luxury homes and condominiums has risen by 70%.

There are good reasons for entrepreneurs in China to be concerned. Chinese economic policy has created client relationships with some former state enterprises, and favors businesses with government connections over others. A probable change in political leadership in the near future will create a whole new group of clients to be rewarded by the state. The illegal outflows of capital are a natural byproduct of the strict controls on capital imposed by the central government. Finally, corruption and protection of intellectual property remain severe problems in China, adding further costs to Chinese business.

China ranked 60th worldwide and 11th among Asian countries in the 2011 International Property Rights Index, published by the Property Rights Alliance.

This trend simply demonstrates a basic fact of economics: when given the chance, people vote with their feet. States that are corruption-free, provide a level playing field for business, protect physical and intellectual property rights, and allow capital mobility will eventually attract investment. Those that do not, regardless of their recent growth, will lose out.