Business Life Chinese dump silk road for US dream
Demand for controversial visa
WHEN the sister of President Donald Trump’s son-in-law, Jared Kushner, promoted investment in her family’s new skyscraper from a Beijing hotel ballroom stage earlier this month, she was pitching a controversial US visa programme that has proven irresistible to tens of thousands of Chinese.
More than 100 000 Chinese have poured at least $24billion (R317bn) in the last decade into “golden visa” programmes across the world that offer residence in exchange for investment.
The Chinese investors flocking to these programtions are people such as Jenny Liu, a doctoral student in the eastern city of Nanjing, who sold her apartment two years ago and moved in with her parents. She used the money from the sale to invest $500000 in a hotel project in the US. If the project creates enough jobs in two years, she will get a prized “green card” and a pathway for a less stressful education for her 9-year-old son.
The flood of investors shows how the new Chinese middle class are increasingly becoming restless as cities remain choked by smog, home prices multiply and schools impose ever-greater pressure on children. They also feel insecure about being able to protect their property and savings.
Their money goes towards government bonds, businesses, mountain ski resorts, new schools and real estate projects, including a Trump-branded tower in New Jersey built by the Kushner Companies, once run by Jared Kushner, now a White House senior adviser.
But the industry is murky, loosely regulated and sometimes fraud-ridden – in the US, federal regulators have linked the EB-5 visa programme to fraud cases involving more than $1bn in investment in the last four years.
Despite criticism from Congress, Trump signed a spending bill that included a renewal of the programme through September, although federal authorities have proposed more than doubling the minimum investment. Just one day later, Kushner’s sister, Nicole Meyer, was in Beijing courting Chinese for a new project funded by EB-5. That has raised complaints about conflicts of interest and new calls to revise or even end the initiative. “It is a growing industry and we do need more oversight,” said Stephen Yale-loehr, an expert on the programme and a professor at Cornell Law School. “EB-5, when it is done properly, can and does benefit the economy.”
Golden visa lure
The number of Chinese using investment migration programmes worldwide trebled between 2010 and 2015, the AP found. “Middle-class investors choosing to leave shows that their confidence in their future, their dreams and the regime in China is fading,” said Zhang Lifan, an independent political scholar in Beijing.
China’s “golden visa” investors are part of a wave characterised not by poverty, persecution or war, but by people with steady jobs and homes who are pursuing happiness that has eluded them in their homeland.
After decades of economic mismanagement and political upheaval, the ruling Communist Party reversed some of its most destructive policies and unleashed a four-decade-long economic boom in the 1970s. That growth lifted 500million people out of poverty and vaulted generations of Chinese from peasantry into relatively well-paying manufacturing or service jobs. More than 3million households in China now have an income of more than $34000 a year, according to the consultancy Mckinsey & Company.
Key to their spending power is China’s real estate boom.
Real estate prices in the country’s largest cities have more than tripled in the last decade, with prices in Beijing rising by an average of 25 percent a year. Like Liu, many of about a dozen prospective investors interviewed by the AP say they do not want their children to struggle in China’s rigid and intensely competitive education system, which emphasises rote learning and can stifle creativity.
Cherry Deng, the mother of a 10-year-old boy in Sichuan province, invested in a port construction project in North Carolina through the programme. She sees Chinese parents supporting their children even after they’ve graduated from college – securing for them homes, jobs and, sometimes, even spouses. “I don’t want to take care of my children forever,” Deng said. “I want them to learn how to live independently and to create wealth on their own.”
Despite her success running an online clothing business in the south-western Chinese city of Chengdu, Peng Jie is not confident of her future in China. She sees the prices of property and schools rising and the value of the yuan falling, and fears that success could be taken away.
“Someone in the middle class can become poor in one second,” she said.
Wooing investors
China is central to the success of almost every major investment migration programme in the world, so many countries are going out of their way to court Chinese investors. Ads for investment programmes pop up on Chinese cellphones and websites, full of promise and intrigue. In crowded hotel ballrooms, foreign officials with pamphlets and flashy presentations tout the same message: start a new life in a country with better education, clean air and a stable future.
Agents selling US projects to Chinese take great pains to prove their expertise on the states, the EB-5 programme and perceived ties to American leaders. Some marketing materials include photos of Chinese posing with former US president Barack Obama.
Now, they are competing against the current president’s relatives.
Trump’s name already appears on another New Jersey residential tower, Trump Bay Street, built with the help of EB-5 funding. The market leader is the US’S EB-5 programme, which gives green cards to anyone who invests $500 000 in a business that creates or saves at least 10 jobs. Several others market themselves as cheaper or quicker alternatives. Portugal has drawn at least $1.7bn over four years from Chinese investors willing to buy property to support its faltering real estate market. Spain and Greece offer similar programmes. But problems in the industry worldwide are rife.
Fraught with risk
The US’S EB-5 programme has been criticised and targeted by legislators of both parties in Congress, who say it promotes fraud and helps developers building megaprojects more than struggling communities. Senator Dianne Feinstein, a California Democrat who has introduced legislation to end the programme, has called EB-5 a “Ponzi scheme”. Her Republican counterpart, Senator Charles Grassley of Iowa, has said EB-5 “poses significant national security risks” and “may be facilitating terrorist travel, economic espionage, money laundering and investment fraud.”
Federal investigators said last month they found that at least three Chinese investors who obtained green cards through the programme were fugitives wanted by Beijing. And the US Securities and Exchange Commission has opened more than a dozen civil cases since 2013 alleging fraud in projects involving about 2 000 investors and more than $1bn in funds.
Defenders of the EB-5 initiative say it creates jobs and provides vital funding for projects across the US, from massive developments in New York to hotels, restaurants and small businesses in the Midwest and on the West Coast.
“That’s the programme working as it should, and more often than not, it is working as it should,” said Matthew Galati, a Philadelphia-based attorney who helps Chinese investors migrate to the US
Canada’s programme drew an estimated $2.4bn through Chinese investors over the past decade, but the national government ended it in 2014, saying that it “significantly undervalued” Canadian residency and created little economic benefit. The province of Quebec has kept in place its separate programme, which has drawn at least $1.9bn from Chinese investment.
And a former Portuguese interior minister and other senior government officials have been on trial since February for corruption, influence-peddling and misconduct in handling “golden visa” applications of investors linked to three Chinese businessmen. Hungary suspended its programme selling visas for government bonds this year after opposition parties and watchdogs accused it of corruption.
Ironically, calls to end investment migration programmes often end up as marketing tools for the hundreds of agents selling them in China. One agent made note of proposals to change the EB-5 programme by saying: “Do not hesitate, and act quickly!”
Du Juan attended a seminar in Beijing held by an investment group pitching ski resorts and other projects. She knows the potential danger of investing through the US programme, but is willing to bear the risk as long as she can get her 10-year-old daughter enrolled soon in an American school. “I don’t worry about the $500 000, but I worry about the loss of time,” Du said. “I am afraid that we’ll be unable to get the visa when we need it.”
Slowing the flow
There are signs that China is trying to slow down the migration. These investors are among the category of people China hopes will buy its domestically made rice cookers, electric cars and energy-saving light bulbs to fuel a new chapter of consumer-led growth. Research by Mckinsey shows that the upper-middle class already accounts for a fifth of China’s private consumption in cities. Articles critical of investment visa programmes have appeared in China’s state media, often highlighting fraud cases or stories of Chinese who faced trouble after going abroad. China has also tightened controls on how much money individuals and companies can move out of the country.
Banks are expected to enforce more strictly the yearly limit of $50 000 that individuals are allowed to take out of the country, and will be required to report any transfers above $10 000. Still, Chinese have typically worked around such controls by slowly moving money or using friends and family members to help them amass an overseas account.
If China, which does not recognise dual nationality, cannot keep entrepreneurs and middle-class families from leaving, it risks endangering its economic future. That includes people like Joey, a 30-year-old Beijing resident who works for a major Chinese stateowned conglomerate. He shared his story on the condition his last name not be used because he hadn’t told his employer of his plans.
Joey and his fiancée have a two-bedroom apartment and plan to get married and have a child in China. Despite their seemingly bright future, they want to raise that child elsewhere. His friends and relatives helped him move enough money offshore to invest in the American EB-5 programme. Joey said he has seen parents and children struggling to breathe in China’s smoggy air, and signs the economy is headed for deeper trouble. “In China, you have to plan ahead,” Joey said.
“You cannot just leave today, whenever you want. You never know what happens next.” – AP