18 January 2019

Chinese immigration is all about lack of confidence

Hongkongers can relate to mainlanders who have been piling into Canada on a wave of immigrant visa schemes.

It was not too long ago that Hong Kong residents went abroad in good numbers in search of residency, leaving loved ones behind, as a hedge against uncertainty in the run-up to the city’s 1997 handover to Chinese sovereignty.

Mainlanders have their own reasons for leaving the country but it’s safe to assume they want a better future for their families. They’re attracted to Canada because of its standard of living, security, economic opportunity and, most of all, its immigrant-friendly policy — until things began to sour in the past several weeks.

Thousands of would-be immigrants were frozen out after the Canadian government, fearing a deluge of Chinese applicants, shut down two highly popular visa schemes for immigrant investors and entrepreneurs.

The upshot was the sorry spectacle of 65,000-plus applicants being forced to give up their places in the queue. About 90 percent of the applicants were Chinese citizens including Hong Kong people.  

Canada had made it easy for investors and entrepreneurs to gain right of abode by offering the lowest investment threshold among developed countries, trumping such investor-friendly countries as Australia, New Zealand and Britain.

Too easy, in fact.

By pledging C$800,000 (US$729,615) in five-year interest-free loans to any Canadian local government, investors could win permanent right of abode in the country. This compares with the equivalent of C$5 million to C$10 million of investment it would take an immigrant to obtain the same status in other countries.

The Canadian government found that over the past two decades, tax contributions from immigrants on previous investment schemes were on average C$200,000 less than those from immigrants admitted for their skills. So the old policy came to selling right of abode too cheaply and not getting the right kind of people Canada’s economy really needs.

It subsequently announced that in a few months, it will introduce a new immigrant investor venture capital fund pilot program and a business skills pilot program. 

Still, would-be immigrants to Canada are unlikely to be deterred. The Hong Kong Economic Journal’s investor diary has looked into the underlying reasons for mainlanders seeking overseas citizenship.

Security is the top concern, especially for wealthy mainlanders, according to a 21st Century Business Herald editorial. The others are education, the environment, healthcare and welfare.

The only way China can address them is by strengthening property rights protection, improving oversight of officials and having a market-driven regime.

Instead of leaving the country, the Chinese elite could play a role in its reform. On the other hand, HKEJ says the scenario is too ambitious and does not take into account other important factors such as freedom of choice and conscience.

The wave of immigration coincides with another trend in recent years — the gold rush by Chinese individual investors, the so-called “Big Mothers”. These are investors who have chosen to park their money in gold, with all its attendant volatility, despite an appreciating renminbi. 

The phenomenon is also rooted in lack of security with regards to China’s economic fundamentals. For years, the country has been leveraging its economic growth on debt. Default risk is rising in trust and asset management products.

The People’s Bank of China, meanwhile, has been pumping liquidity into the market while keeping inflation under control by accumulating US dollar assets.

Freya Beamish, an analyst at Lombard Street Research, said China’s colossal foreign exchange reserves are like a giant foreign-based US Treasury ETF (exchange traded fund) with the Chinese central bank being the issuer but with the value of the ETF largely tied to the exchange rate of the US dollar and the “number of units” it sells to the market.

As such, the stability of the renminbi exchange rate is more dependent on US dollar assets in the foreign exchange reserves, not in China’s economy itself.

In other words, gold buying by Chinese Big Mothers and aggressive investment by China’s rich — in luxury apartments in London, for instance — reflect their lack of confidence in China’s ability to ensure the renminbi’s future.

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Freelance journalist

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