By Anna Richardson
SONGJIANG, China—“Dog. Hand. Chair. Stapler.” In Songjiang, a western district of Shanghai with a population the size of Philadelphia, 17-year-old Shen Mei recites common nouns with her classmates. Four times a week in the evening, Shen attends the unofficial “Elite English School,” a windowless basement room where she and 24 other girls prepare themselves for a new life abroad. After only two months of classes, her grasp of English remains tenuous. Through translation, Shen describes her ambition.
“I want to move to Canada. There I can start a business, and the air is clean.”
Across town on Hengshan Road, a leafy boulevard in Shanghai’s former French Concession, 17-year-old Joseph sits at the dining table in his parents’ luxury apartment, rote learning Rousseau. Hugo, his Eton and Oxford educated private tutor, explains the social contract. Tonight they tackle the French Revolution; tomorrow it might be table manners, Shakespeare, or World War I. Joseph’s parents are hoping that Hugo’s pedigree will propel their son through his own Oxford interviews this December. Joseph, like Shen, has his sights set beyond the mainland.
As of February this year, 825,000 Chinese citizens live and work abroad, according to Ma Bin, an official at the Chinese Ministry of Commerce. Many more Chinese have taken citizenship in their new home countries. The annual Chinese Immigration Report published by the Chinese Social Sciences Academic Press estimates that there are 45 million “overseas Chinese.” While hundreds of thousands like Shen emigrate as migrant laborers for Chinese companies or to start small businesses around the world, they tend to eventually return to China. It is the mass exodus of the Josephs—the wealthy, educated elites—that may pose the greater problem to the Chinese state.
As Beijing seeks to shift its economic base from simple, low-end manufacturing to more innovative ‘value added’ forms of production, retaining top talent becomes more crucial than ever. In 2009, 93.6% of China’s exports were manufactured goods, but as Chinese citizens become wealthier and wages rise, China is losing its comparative advantage as a low-cost manufacturing destination. The government is aggressively pursuing policies to reverse the brain drain and to attract the best and the brightest Chinese students back to the mainland to contribute China’s development as a modern, global economic power.
Foreign passports have traditionally been valuable for the Chinese elite, despite the government’s policy of strict single nationality. In the lead up to the transfer of Hong Kong to China in 1997, hundreds of thousands of Hong Kong residents applied for British passports, and 50,000 families were selected to receive full British citizenship. “In 1990, we were scared for the future,” says Brian Leung, a Hong Kong resident who successfully applied for British citizenship in 1991. Leung operates a successful chain of cafés in Hong Kong and plans to stay put, but is glad to have his British passport. “We are not scared like in 1990,” he says, “but you never know what might happen in China.”
Today, foreign passports and foreign investment often come hand in hand.
Each year, $1.59 billion is funneled into overseas investments by Chinese investors, according to official figures. The real outflow may be much higher. Official sources indicate that over 80 percent of these investment flows went to the United States, Australia, and Canada. All three of these countries have programs that offer investors resident status, and put them on the fast track to citizenship.
Australia announced in 2012 a new Significant Investment Visa category, allowing those who invest at least 5 million Australian dollars, which is just over $5 million, into Australia to apply for permanent residency after four years. The regulation relaxes the stringent language and citizenship exams normally applied to would-be immigrants for this exclusive tranche of investors.
“We’re seeing an influx of magnates out of China who are already doing business with Australia, maybe buying iron ore or making steel. They are looking to deepen ties by investing in real estate,” says Richard Butler, Senior Managing Director of CBRE, a leading commercial, retail, and industrial estate agent in Australia. Butler has been selling properties to Chinese buyers since 1982, and has seen the number of Chinese investors steadily rise.
Australia’s economy is heavily reliant on China, and Australia’s growth is part of the “great China story.” Chinese demand for minerals and resources drives strong Australian growth, and in Australia, it is possible to bet on China’s growth without taking on the sovereign risk. Even given the volatility of the Australian dollar, which, according to Butler, goes “up and down like a bride’s nighty,” property investors can make significant profits. According to Butler, it isn’t the “great Aussie dream” that attracts Chinese money to Australian shores—while the occasional buyer is looking for “touzi yimin” (immigration by investment), for many investors, profit is the motive.
Xiaolan “Sherri” Shang, an agent at Douglas Elliman in New York, reports a similar trend. Shang, an elegant former opera singer clad in Louis Vuitton, has capitalized on her connections back in her hometown of Beijing to build a career selling Manhattan properties to Chinese investors. Shang estimates than 90 percent of the properties she sells are purely for investment, and very few buyers move to the United States full time.
“These guys are getting rich in China,” she says, “but they don’t want to lock their money in one place. They’re not sure what’s going on there.” Her clients tend to be businessmen, but she has also dealt with major politicians who pay in cash. All her clients are looking for big returns on their investments.
“The other reason Chinese clients invest in New York properties is for the next generation,” she adds. “They want to send their kids to study in New York right away.” One of Shang’s current clients is a 21-year-old NYU economics student, who wished to remain nameless. Her father, a construction magnate back in China, is looking to buy on the Upper East Side.
During a recent viewing, the girl snapped photos on her iPhone 5 as Shen showed her around the luxury Azure building on East 91st Street. Pleased with the hardwood floorboards and marble features, the girl announced that she would instruct her father to buy 10 apartments in the building—one for her, nine to rent.
Joe Wong, a Chinese-American Manhattan-based real estate broker, says Chinese buyers rarely seek U.S. citizenship or residency. “I have met a few people who wanted to immigrate here,” he says, “but most of them gave up after consideration. First, the tax here is heavy and complicated; second, it is easy for those people to come and live in their houses anyway; third, their business are in China; last, as Chinese, we still prefer to live in our own land.” The few who do apply for EB5 “investor visas,” as Wong describes, tend only to want to accompany their children through the U.S. education system. “This is the single biggest reason for Chinese to come as EB5,” he says, “to let their children have better future.”
Many wealthy Chinese seek to provide their children with the trifecta of opportunity abroad: foreign passports, foreign investments, and foreign education. The privileged classes of China—the wealthy elite, with or without party connections—see a foreign education as both a mark of distinction and a door opener for their children. According to Shanghai based consulting company Hunrun’s 2012 wealth report, 85% of Chinese millionaires and 90% of Chinese billionaires plan on sending their children abroad for school or college.
Jay Chen, a Hong Kong venture capitalist, has two masters degrees from Cornell and a passport from Trinidad and Tobago. His wife spent seven years at Julliard, four at Cornell, and two at Harvard Business School. Chen’s family history is woven into China’s past. His grandfather was Sun Yatsen’s foreign minister in the Republic of China and his father a sometime-comrade of the revolutionary leader Mao Zedong, but Chen is adamant about the importance of maintaining ties overseas. He is determined that an ivy-league education can provide an important mark of distinction for his own two children.
“During the Cold War, NATO had fabulous tanks. They could let off three rounds a minute, with a 95 percent kill ratio. The Warsaw Pact countries had less good tanks, but there were 50 of their tanks for every one of NATO’s,” says Chen, attempting to describe what it is like for his children to compete against the hoards of students on the mainland. “There are just too many good students to compete against.” For Chen, sending his children abroad is not a matter of fear—in fact, he is optimistic that China is on the path to renewed greatness. Rather it is a calculated move to set his children apart from the pack.
“Education abroad is often perceived to be more comprehensive and holistic,” says Jennifer Ma, co-founder of ARCH Academy, an educational consultancy based in Hong Kong that helps students prepare to study in the United States or United Kingdom. Ma’s clients come from Hong Kong and the mainland, and while around 40 percent have parents who have studied abroad themselves, many come from domestic backgrounds. According to Ma, Chinese parents are impressed by the rigor of foreign universities and see a foreign education as an investment in their children’s language abilities and their independence.
“Often parents introduce the idea to student and initially students may be reluctant as they are comfortable with the status quo,” says Ma, who completed her own studies at Oxford before returning to Hong Kong to work for Goldman Sachs. While the children usually come around to the idea of studying abroad, parents remain key driving factors.
The rising generation is not the first to benefit from education abroad. Nancy Liu, a highly charged 50-something venture capitalist with apartments and children scattered across the world, left Nanjing in 1973 to study at UW-Madison. After graduating from her masters program, Liu returned to China where she navigated a successful career working for both Chinese and American banks.
Liu’s daughters, one in Sydney, one in Melbourne, are the third generation of her family to study abroad, and while she keeps apartments in Shanghai, Nanjing, and Hong Kong, she predicts that her daughters will choose to stay in Australia post graduation.
For Liu, foreign education is a form of hedging. “We feel safer overseas,” she says, “and it’s better to guarantee your principle abroad than to risk losing everything here in China.”
Beijing’s campaign to lure Chinese-born professionals, academics and innovators back to the mainland has been moderately successful. Programs such as the “1,000 Plan for the Recruitment of Global Experts” offer tax breaks, insurance and housing subsidies to highly skilled returnees. Ma points out that while many ARCH Academy students want to stay abroad after their studies, booming Asian economies mean an increasing amount of students “have the vision to come back to Asia to work in the future,” and their foreign education may give them an edge.
However, only sustained and significant investment in China’s universities will be able to stem the tide of emigration for education. Innovation requires critical thinking, which can be at odds with the rote-learning style favored by Chinese educational institutions. “The academic system in the U.S. is more fair and transparent,” says Tom Jin, a computer science PhD candidate at New York University. “In China, the academic system is a mess. The elite class leave China in protest against the unfair and opaque system in place in China,” he says.
The exodus of wealthy elites does not, as of yet, pose major economic challenges to China: Chinese citizens have no choice but to put their savings in state banks, and the cost of capital is close to nothing. The real cost is in terms of future capacity to innovate: as China seeks to shift from low-tech manufacturing to a high-tech, value-added economy, retention of the entrepreneurs, the risk takers and the innovators becomes more important than ever.
Anna Richardson is a masters student at Columbia's School of International and Public Affairs studying international security policy and human rights.
Additional reporting by Ntshepeng Motema and Hongxiang Huang
[Photo courtesy of faungg.]