China’s rich fleeing the country—with their fortunes

It’s one of the largest and most rapid wealth migrations of our time: hundreds of billions of dollars, and waves of millionaires flowing out of China to overseas destinations.

According to WealthInsight, the Chinese wealthy now have about $658 billion stashed in offshore assets. Boston Consulting Group puts the number lower, at around $450 billion, but says offshore investments are expected to double in the next three years.

A study from Bain Consulting found that half of China’s ultrawealthy—those with $16 million or more in wealth—now have investments overseas.

And it’s not just the money that’s exiting the country. The wealthy are increasingly following their money overseas.

A study by Hurun and Bank of China found that more than half of China’s millionaires are considering emigrating or have already taken steps to move overseas.

Many experts say that the wealthy are moving to protect their wealth, their health and their families. With China increasingly cracking down on ill-gotten gains and corruption, many of the politically connected wealthy are looking for safer havens abroad.

They are also looking for better environments for their children—with better schools and cleaner air.

“Whether it is the perceived political instability or perhaps lack of educational opportunities, or pollution in the urban environments there, when you put those altogether … and you mix that with the wealth that’s present in China now, it really makes sense that there are folks there looking to explore these opportunities,” said Peter Joseph of the Association to Invest in the USA, which represents investor-visa programs in the U.S.

Some say the capital flight and millionaire migration are normal consequences of rising wealth. Oliver Williams, of WealthInsight, said that the Chinese wealthy have about 13 percent of their wealth overseas—below the global average of 20 percent to 30 percent.

Still, much of China’s offshore wealth is moved illegally or in the shadow economy. China maintains a closed capital account and Chinese citizens are generally not permitted to move more than $50,000 out of the country. So reliable data on exactly how much money is moving out remains unclear.

But the global buying spree by wealthy Chinese suggests the numbers may be far higher than reported. Wealthy Chinese buyers purchased more than $8 billion worth of residential real estate in the U.S. in the 12 months ended in March, according to the National Association of Realtors. China’s share of foreign-purchased residential real estate has jumped 50 percent since 2011.

One of China’s richest women, Zhang Xin of developer SOHO China, recently bought a townhouse in Manhattan for $26 million, according to reports.

China’s wealthy also are pouring money into collectibles and art. Billionaire Wang Jianlin and his company Dalian Wanda last month bought a Picasso at a Christie’s auction for $28 million. Bidding from Chinese buyers was strong throughout the auctions, according to dealers and gallerists.

It’s also going to wine and diamonds. Diamond dealers say more than half of today’s collectible diamonds are going to Chinese buyers. And on Saturday, the world’s most expensive case of wine—1978 Romanée-Conti—sold in Hong Kong for $476,000.

—By CNBC’s Robert Frank. 

InvestHK building bridge for mainland companies to go global

With the 17th China International Fair for Investment and Trade set to open on Sunday in Xiamen of southeast China’s coastal Fujian province, China Daily’s Zhang Haizhou sat down with Victoria Tang, associate director-general of Invest Hong Kong, to discuss the flow of investments between the mainland and the special administrative region, and how the financial hub of Asia connects mainland investors with the world.

Why are you attending this year’s CIFIT, and what is the significance of the event?

At CIFIT this year, Invest Hong Kong is pleased to continue organizing a seminar and media conference on Sept 8 to promote the business advantages of Hong Kong.

It focuses on service industries and will encourage more mainland companies to “go global”.

Invest Hong Kong will also work with the Hong Kong Trade Development Council to host a Hong Kong Pavilion at CIFIT.

The pavilion will feature a thematic design of “Windows of Infinite Opportunities” to highlight the role of Hong Kong as an international business platform offering high-quality professional services, and strengths in logistics, finance, eco-friendliness, fashion, entertainment and product design.

How big is Hong Kong as a destination for investment from the Chinese mainland?

The mainland market is the largest source of inbound direct investment into Hong Kong. According to a government survey, more than 250 mainland companies were maintaining regional operations in Hong Kong to oversee or coordinate their business on a global or regional scale as of last June.

For the first half of this year, Invest Hong Kong has assisted a record 213 overseas and mainland companies to set up or expand in Hong Kong.

The interim results were encouraging because they showed continued strength despite challenging global conditions.

The 213 completed projects came from 33 different markets.

In what ways can mainland investors get help from Hong Kong in their global endeavors?

We have seen an upward trend in investments from mainland companies in Hong Kong, covering a wide spectrum of businesses, such as wholesale and retail trade, financial services, logistics, construction, information and communication technology, hospitality and tourism as well as consultancy services.

As an international financial, trade and shipping center, Hong Kong offers a free, open and liberal market economy.

Hong Kong scores highly for its business-friendly environment, rich experience in international marketing, robust regulatory regime, world-class infrastructure and rich pool of skilled professionals and services staff.

Are there any restrictions or barriers for the mainland’s firms to invest in Hong Kong? Does Hong Kong have a preference for firms from any sectors in particular?

There is generally no entry barrier to direct investment in Hong Kong and we offer all a level playing field.

Mainland companies are welcome to set up or expand in Hong Kong and use the place as a “testing ground” for expanding overseas.

Service industries currently account for some 93 percent of Hong Kong’s GDP.

Investors often set up regional headquarters or regional offices in Hong Kong for sales, marketing, distribution, finance, management and R&D functions and form strategic partnerships with Hong Kong entrepreneurs.

What are the major advantages of Hong Kong compared to other attractive destinations at a time when increasing numbers of mainland investors are going global?

Hong Kong ranked third in terms of global Foreign Direct Investment inflows in 2012, according to the United Nations Conference on Trade and Development’s World Investment Report 2013.

Hong Kong’s enduring advantages, including its low and simple tax regime, rule of law, free flows of information and capital, and a workforce with an international perspectives, continue to make it a desirable platform for overseas and mainland investors.

 

Business Shanghai gaining favor with wealthy as financial center

Shanghai gaining favor with wealthy as financial center

Shanghai has overtaken Hong Kong and Singapore to become the world’s fifth most important financial center, and Beijing is considered the second most influential political city, in a survey that gauges the importance of global cities.

The joint study, by leading international property consultancy Knight Frank LLP and Bank of China International Ltd, said Shanghai – which is striving to become Asia’s top financial center – had passed its two most traditional Asian rivals, who have slipped to 7th and 8th respectively.

New York, London, Tokyo and Paris take the top four spots as financial centers, said the report, while the Chinese capital Beijing is second only to the US capital Washington DC in terms of political importance.

The Wealth Report 2013 gathered the views of 15,000 people with at least $30 million in net assets – which it called “high net worth individuals” – gauging attitudes in four areas: economic activity, political power, quality of life, and knowledge and influence.

Other top-tier mainland cities featured in the survey include Guangzhou and Shenzhen, which Liam Bailey, the head of residential research with Knight Frank, said he expected to see grow strongly in global importance over the next few years.

The study ranked Beijing at 15th overall this year, with Shanghai at 24th, according to the report.

“By 2023, our survey of high net worth individuals will show Shanghai and Beijing joining the top 10 at the expense of Geneva and Paris,” said Bailey.

Commenting on the results, Qi Xiaozhai, director of the Shanghai Commercial Economic Research Center, said he thought the two Chinese cities should have higher positions, given their rising lifestyles.

Beijing is still 40th in terms of life quality, and Shanghai is 39th, said the report.

“This reminds us that as we develop the economy we also have to consider lifestyle issues, such as protecting our living environment,” said Qi.

Knight Frank’s accompanying luxury investment index showed that collectable assets such as art, fine wine, classic cars, coins and watches have accrued cumulative gains of 175 percent over the past 10 years, and 6 percent last year alone.

It said that wealthy Chinese were leading that trend, reshaping the global markets for art as well as antiques, jewelry and other luxury items.

Additionally, the report showed an evolution of the map of the world’s wealthy, with a new concentration of wealth in Asia.

Globally, the number of billionaires will increase by 85 percent over the next 10 years, with the biggest increase being in Asia, or 119 percent, it predicted.

The top country for billionaires is still the US with 543 and that will grow by 103 percent by 2022, but China in that time will increase from 154 to 483, an increase of 214 percent.

Knight Frank also predicted further gains in prime property values in Shanghai and Guangzhou, particularly, as both remain targets for investment from other areas in China, benefiting from growing national wealth, especially in lower-tier cities.

wang_ying@chinadaily.com.cn

Pansy Ho reveals her vision for Macao’s transformation

By Li Jing

The Global Tourism Economy Forum (GTEF) will take place in Macao from Sept 9 to 11, and one of the major issues tabled for discussion may be the host city’s transition from China’s only gambling enclave to the nation’s leisure and tourism hub.

At least, that is definitely on the agenda of Pansy Ho, who is a major mover in the special administrative region’s tourism industry.

“It’s not because we can’t grow the gaming industry,” says Pansy Ho on the sidelines of the forum’s launch ceremony. “But we know, with far-sighted vision, that we want Macao to become more than that. If we don’t want Macao’s growth to eventually find itself at a stalemate, we need to start thinking quickly on how Macao can continue its impetus.”

Ho is the daughter of casino magnate Stanley Ho, who almost single-handedly created Macao’s reputation as the “Las Vegas of the East”. She is also vice-chairman and secretary-general of GTEF.

Currently, Macao is the world leader in gaming revenue, with a total of $34 billion in 2011, nearly six times the $6.1 billion revenue of the Las Vegas Strip.

Strong regional demand drives the gaming industry, spearheaded by its top feeder market, the Chinese mainland, according to a newly published quarterly report by HVS, a global consulting and services organization with the focus on gaming and leisure industries.

The report says more than 4.4 million mainland Chinese visitors visited Macao in the last quarter of 2011, the highest number ever.

Joao Manuel Costa Antunes, director of the city government tourism office, said in an interview with Bloomberg, that Macao’s tourist arrivals will increase at least 10 percent this year from 2011’s 28 million, led by visitors from the Chinese mainland.

But there are signs of an approaching storm. Although the report says Macao’s gaming industry will “remain unrivaled for the foreseeable future”, the competition from Singapore, Vietnam, the Philippines and relatively more distant Australia is intense.

These markets, too, are looking at attracting big-spenders from China.

That is the reason Ho thinks Macao must look ahead and plan forward. Her vision dovetails into China’s 12th Five-Year Plan for National Economic and Social Development, where Macao Special Administrative Region is to be positioned as a world center of tourism and leisure.

Macao is the only place in China where gaming is legal, although there are restrictions for its citizens. Non-Macao residents are only allowed to visit once every three months and Chinese civil servants are not allowed in Macao casinos.

However, these restrictions do not apply when individual mainland Chinese travelers visit Singapore and other Southeast Asian countries.

“The fact that fierce competition has begun to reduce Macao’s average gaming revenue per guest indicates there is a point of saturation in the gaming industry. It compels Macao to diversify its economy and develop other attractions,” says Shi Guang, researcher at Office for Taiwan, Hong Kong and Macao Affairs of China Academy of Social Sciences.

Ho thinks the prospects are good.

The city is compact, featuring cobblestoned lanes, colonial mansions, art deco buildings and tranquil parks, all done in a fusion of Chinese and Portuguese cultural motifs.

Although the former sleepy fishing port preserves its historic heritage well and has them listed by UNESCO, it is overshadowed by many mainland tourist destinations in terms of natural wonders and cultural treasures.

“Macao intends to cater for tourists by re-inventing itself,” Ho says.

Like Vegas, Macao has attractive recreation options, including Cirque du Soleil’s ZAIA show, the theatrical acrobatics and dancing extravaganza House of Dancing Water and concerts by musical celebrities such as Beyonce.

Infrastructure updates will also push Macao into the forefront. The ambitious Hong Kong-Zhuhai-Macao Bridge will be ready in less than five years, and “a rail network will also be added, bringing the traveling distance between Macao and Guangzhou to less than one hour”, Ho says.

She says Macao is positioned to be a transit hub connecting China to Southeast Asia, adding: “Within the short span of 13 years since Macao returned to China, all these infrastructure projects are being put in place.”

Zhang He, deputy general manager of Beijing Youth Travel Service, says Macao, as a geographic hub, will have more stopover and cross-boundary travelers, which will add to the considerable number of tourist arrivals to Macao.

But Ho says Macao needs to tackle the transformation gradually and she knows it will not take place in the immediate future.

CHINA DAILY

CHINA – Mainlanders going overseas up 20 pct

BEIJING – The number of Chinese mainland residents going overseas reached 38.56 million in the first six months of the year, up 19.75 percent year-on-year, the Ministry of Public Security said Sunday.

The number of exit and entry across the Chinese border reached 208 million in the six months, up 6 percent from the same period of last year, according to a statement of the ministry’s Bureau of Exit and Entry Administration.

The numbers of mainland residents, Hong Kong and Macao and Taiwan citizens, and foreigners crossing the border during the period was about 76.7 million, 105 million and 26.78 million, respectively, the statement said.

The first five destinations reached by mainland residents are Hong Kong, Macao and Taiwan as well as the Republic of Korea (ROK) and Japan, it said.

The number of entries by foreigners was up nearly 4.6 percent year-on-year in the six months, most of whom came from the ROK, Japan, the United States, Russia, Malaysia, Vietnam, Singapore, the Philippines, Mongolia and Australia, according to the ministry.

Most of them crossed the Chinese border via airports in Shanghai, Beijing and Guangzhou, the statement said.

Police at the border found 1,337 persons involved in illegal entry or exit, discovered 24,200 persons violating exit and entry laws and regulations, and seized 343 alleged escaping persons during the first half of the year, the ministry said.

CHINA DAILY

Easing moves start to thaw housing market

By Wu Yiyao in Shanghai and Li Wenfang in Guangzhou, China Daily (June 28, 2012 15:15)

Property markets across China are showing signs of a definite thaw, as pent-up demand is fanned by widespread speculation about further easing in the government’s monetary policy aimed at fuelling the economy, according to an influential snapshot of the sector.

In its latest report, China Index Academy, or CIA, said that 35 major cities reported year-on-year sales increases, with Lanzhou, capital of Gansu province, hitting a massive 560.25 percent year-on-year increase between June 17 and 24.

Headquartered in Beijing, CIA is one of the country’s largest property research institutions, providing extensive coverage of property markets through a network of offices in major cities.

The latest report showed that as many as 57,000 apartments in 54 major cities were sold between June 17 and 24 – a weekly record that exceeded 50,000 traded units since 2011, according to statistics provided by Centaline Property Agency Ltd.

The turnover in May of four leading Chinese real estate developers exceeded 10 billion yuan ($1.57 billion), according to their latest financial reports, suggesting a warming market after a year-long chill.

The four companies are Poly Real Estate Group Co Ltd, China Vanke Co Ltd, Evergrande Real Estate Group Ltd and China Overseas Holdings Ltd.

The top seller Poly’s sales in May grew 45 percent over a year earlier to hit 10.77 billion yuan, slightly higher than that of China Vanke. It was the first month in 2012 that Poly had revenues of more than 10 billion yuan.

The combined turnover in May for the top 15 of China’s property developers reached 268.6 billion yuan. For many companies, the turnover grew more than 20 percent last month.

A survey released by the People’s Bank of China on June 19 showed that among 20,000 respondents in 50 cities across the nation, 29.4 percent said they could afford homes at their current price level.

About 15 percent said they intended to buy a property in the coming three months, the highest rate since 2011 when the central government announced it was placing controls over housing prices while looking for ways to boost the economy.

About 20 percent of respondents said they expected that housing prices will increase, according to the People’s Bank survey.

Local governments across China have been trying to adjust house sales policies to help kick-start the economy, said Xue Jianxiong, analyst with China Real Estate Information Corp, or CRIC, a realty information provider.

Xue added that discounts introduced by developers in the past months have attracted buyers; the number of available apartments have decreased, while demand grew, with the average price rising as a result, in many of the popular projects.

As well as developers, local governments are also trying to increase sales.

The central government has approved more than 80 percent of new house purchase policies proposed in 33 cities since August 2011, Securities Times reported last month.

However, some policies aimed at loosening purchase controls proposed by some local governments, including those of Foshan, Wuhu, Shanghai, Chongqing and Chengdu, have been suspended or canceled after being found to conflict with the central government’s plans to curb price increases, the report said.

One example was a policy proposed last week in Henan province, which offered a 30 percent discount on interest rates for first-time homebuyers.

But two days after being offered, Henan authorities withdrew it, due to what it called conflicts with central government controls.

Despite central government efforts at curbing price increases, in many cities, including Beijing, Guangzhou and Shanghai, the prices of newly developed apartments have still been climbing since April, according to the latest sales records by local housing authorities.

The average price of some new properties, especially high-end ones, have seen up to 20 percent annual price increases in Shanghai, according to the latest report by CRIC.

Chen Qiguang, a 32-year-old potential buyer in the city, said: “I’ve visited more than 10 projects in the past two weeks, and have found average prices of new projects have been significantly higher than in early March, and second-hand properties are in short supply because owners do not want to sell at a low price.”

Average Shanghai housing prices for newly developed properties in the first 17 days of June hit 23,141 yuan ($3,640) per square meter, their highest level for 18 months.

Among the 56 new properties monitored by CRIC in Shanghai, 30 were reported as rising in price, while 26 were sold for a lower price, the CRIC report said.

“Some buyers are worried that house prices might further increase so they bought homes during the past two months, which helped push up prices since April,” said Zhang Yulin, an account manager at Xinyuan Property Agency in Shanghai.

Some popular housing projects have suspended discounts amid the bullish market, which also added to average prices, added Zhang.

Li Wenjiang, chief analyst of the Hong Kong-listed property agent Hopefluent Group Holdings, reported solid demand from buyers in Guangzhou, as a result of improving conditions being offered.

The market there remains especially good for buyers looking to upscale, with more large units set to be launched, lifting overall prices, said Li.

But he ruled out any fast growth in the market in the immediate future, given the economic conditions and controls by the government.

The traditionally dull months of June-August would also curb any rebound, added Li.

Contact the writers at wuyiyao@chinadaily.com.cn and liwenfang@chinadaily.com.cn

Zheng Yangpeng contributed to this story

 

HK plays an irreplaceable role

HK plays an irreplaceable role
By Cheung Yan-Leung (June 28, 2012 15:32)

Hong Kong returned to China 15 years ago, and its role as an international financial hub has since then been elevated and enhanced.

The City of London Corporation has published the Global Financial Centres Index twice a year since 2007, and most of the time Hong Kong has ranked behind only New York and London.

The development of Hong Kong’s stock market remains robust. The number of companies listed on the Hong Kong Stock Exchange was 1,496 in 2011, up from just 658 in 1997, representing a total market capitalization of HK$17.5 trillion ($2.26 trillion), more than five times the HK$3.2 trillion of 1997. Meanwhile, the average daily turnover increased from HK$15.5 billion in 1997 to HK$69.7 billion in 2011.

Noticeably, Hong Kong’s stock market has become an important platform for mainland companies to raise funds. Mainland companies represented less than 20 percent of the market capitalization and less than 40 percent of the market turnover in 1997. However, by 2011, 640 of the listed companies were from the Chinese mainland, registering a market capitalization of $1.25 trillion, or 55 percent of the total, representing more than 60 percent of Hong Kong’s total equity market turnover. With large-sized State-owned enterprises being listed, Hong Kong ranked the world’s largest initial public offering market in 2011, claiming the top spot for the third consecutive year.

Hong Kong has also helped facilitate the reform of mainland companies. Specifically, mainland companies have to make systemic changes to meet the listing requirements of the Hong Kong Stock Exchange and certain disclosure requirements and legal regulations. As investors worldwide hold stakes in the companies after they are listed, the companies have to take into account stakeholders’ expectations and their business operations are subject to supervision. Through its strict requirements for governance structure and investment decision-making, the Hong Kong equity market has helped spur the transition of these mainland companies into modern corporations and sharpened their global competitiveness.

Hong Kong has also contributed to the mainland’s economic development over the past 15 years, and the mainland’s continued economic boom in the next few years will renew opportunities for Hong Kong. China promulgated its 12th Five-Year Plan (2011-15) last year and for the first time incorporated a chapter on the Hong Kong Special Administrative Region, which demonstrates its support for consolidating and enhancing Hong Kong’s role as an international financial center and support for Hong Kong’s development into an offshore yuan center and an international asset management center.

With the central government’s support, Hong Kong will continue to facilitate the reform of mainland companies and serve the national “going out” strategy.

This strategy aims at, on the one hand, encouraging Chinese companies to expand their business overseas, and on the other hand, internationalizing the yuan. The 12th Five-Year Plan (2011-15) emphasizes expediting the implementation of the strategy, encouraging and guiding mainland companies to invest overseas.

The outbound direct investment made by mainland companies is thus expected to grow rapidly. Hong Kong remains a major center for overseas direct investment flows, and more than 60 percent of the mainland’s overseas direct investment has gone to or through Hong Kong in recent years. The increasing ODI by mainland companies will generate great demand for finance and investment consultancy services, and Hong Kong is, and will remain, the strongest provider of such services.

Hong Kong has also played a key role in efforts to internationalize the yuan since it was established as an offshore yuan business center. The onset of the global financial crisis in 2008 and the ongoing European debt crisis have exposed the fundamental weaknesses of the current international monetary system and affected China’s foreign trade and foreign exchange reserves. China is now the world’s second largest economy and has good reasons to internationalize the yuan.

The current global economic landscape and China’s immature financial system will continue to prevent the yuan from becoming a fully convertible currency any time soon. So the development of offshore yuan centers remains the ideal choice to orderly and gradually expand the international use of the currency. Hong Kong is now taking the lead in this, and the rapid growth in yuan-denominated business worldwide will continue to benefit Hong Kong.

Despite the aforementioned opportunities, concerns have arisen that Hong Kong’s status as a global financial center is threatened by mainland cities especially Shanghai. However, their relationship is actually better defined as complementary and cooperative. China is a vast country with an economy large enough to accommodate two global financial centers.

The reality is, although Shanghai is the economic hub of the Chinese mainland with sound economic foundations and policy support, it still falls short of international standards in terms of institution building, especially legislative construction and financial liberalization. It is Hong Kong that serves as the bond connecting the Chinese mainland and the global economy, and its role cannot be replaced by Shanghai in the short term. Rather, its position as an international financial hub will be further consolidated and enhanced through its continued cooperation with mainland cities.

The author is dean of School of Business of the Hong Kong Baptist University.