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Why Are Rich Chinese Entrepreneurs Leaving China?

Chinese entrepreneurs are leaving China. According  a survey, conducted by China Merchants Bank and Bain & Co., 27% of entrepreneurs worth over 100 million RMB have already emigrated and 47% of them are considering moving abroad.

The growing trend is nurturing resentment towards wealthy emigrants among Chinese citizens. And the recent exposure of a prominent businesswoman and member of the CPPCC (China's political advisory body) Zhang Lan’s immigration further triggered controversy in Chinese society.

Economic insecurity

Chinese Entrepreneur Magazine [zh] analyzed:

Zhang Lan's emigration triggered controversy in Chinese society. Screen capture from local news-report via Youku.

中国企业家杂志:分析认为,缺乏安全感是众多商人共同的感觉。迁往其他经济体,可以提供其他的、独立于中国经济的财富来源的新机会。多样化可以降低风险,避免因只在一国经营、或从事一种经济活动的损失,提高富人阶层的“安全感”。

Chinese entrepreneurs all suffer from a lack of security. Once they emigrate to another economic system, they will be provided with new opportunities independent of the Chinese economy. The diversity lowers their risk compared to doing business only in one country(China) where policies can be unstable. Overall, it helps to enhance their sense of security.

ifeng.com[zh], a prominent Chinese newspaper, shared similar opinion:

老实说,在目前的中国很难给人以安全感,普通老百姓可能觉得有钱人比较安全,自己因为各种社会保障不全的缘故比较焦虑,但有钱人的安全感更低。前段时间三一重工的梁稳根说过,自己的财产与生命都是国家的,党员的太太也比较漂亮。这话看上去挺谄媚,实际上更像是一种恐惧的表达。任何做企业的人都知道,只有产权清晰才好做事,自己的产业怎么可能做这样的表述?

Honestly, Chinese society doesn’t provide citizens with a sense of security. Average citizens may think rich people feel safe because they don’t need to worry about social welfare; however, rich people in China feel even less safe. Recently, one of China’s richest men Liang Wengen said his property and life belong to the country and that the Party members’ wives are more beautiful. It seems a stupid thing to say, but it reveals his fear. How can an entrepreneur make such a statement about his property? Any entrepreneur knows clear property rights are essential for doing business.

Rigid Rules for Chinese Enterprises 

Huang Song[zh], Secretary-General of Finance Industry and Development Research Center of Peking University pointed out a neglected reason behind the immigration:

企业家移民有很多原因,舆论通常关注的有两方面:一是对社会未来没有信心,二是做过亏心事怕事后被追究。但还有一个日益重要的原因却常常被忽视,那就是中国企业对外投资和海外融资的种种政策障碍和审批限制。第一,由于资本账户下的外汇管制,中国企业对外投资需要外汇管理部门审批,直接投资方面的审批政策不断放松,但仍存在不少限制,而金融投资则受到严格管理。第二,中国企业对外投资项目需要发展改革部门核准,在时间上、获批性上都存在较大不确定性。
中国的金融体系本质上还是一个支持国有企业和大型企业的垄断金融,大量民营企业和中小企业存在融资难问题:银行贷款难、上市更难、发债是难上加难。

There are many reasons why entrepreneurs choose to emigrate. Public opinion is usually concerned with two reasons: first, they do not have confidence in China’s future; second, they are trying to escape from something illegal they have done. But there’s a very important reason often ignored, that is, the large number of government restrictions and barriers to overseas investment and financing. First, due to the control of foreign exchange under the capital account, overseas investment by Chinese enterprises need to be approved by the Foreign Exchange Management Department. And although the investment polices have become more relaxed than the past, there are still a lot of limitations and financial investment is still strictly managed. Second, overseas investment has to be approved by the Development and Reform Department, which brings a lot of uncertainty to projects.

China's financial system essentially only supports state-owned enterprises and large enterprises. For private enterprises and small and medium-sized enterprises there exist difficulties in financing: it's difficult to get loans, and even more difficult to go public or issue bonds.

Yang Yongmin[zh], GM of Offshore Incorporations Group Beijing Office echoed:

晒歪歪:不出所料,俏江南张兰移民到了那个加勒比海的一个岛国。了解这个情况的都知道,这跟张兰是否爱国没任何关系,纯粹是资本项下的移民,为公司海外上市考虑。 中国总有很多傻比的政策,坑了自己人,肥了外国人。

I’m not surprised that Zhang Lan emigrated to that Caribbean island. People who have a little knowledge about Chinese private companies know that it has nothing to do with whether Zhang loves the country or not. It’s because it’s easier for the company to go public overseas. There are so many stupid policies in China that inconvenience Chinese themselves and benefit foreign countries.

People's Daily published a commentary suggesting following the Americans by implementing heavier taxes on rich entrepreneurs to prevent them from emigrating, the piece soon triggered netizens’ disagreement. Famous TV show host Meng Fei criticized:

孟非: 这个思路有问题!你见过几个美国富豪放弃美国国籍?应该思考的为什么那么多官员家眷、演艺明星、大小富豪、著名学者都想移民?而不是琢磨怎么给他们移民设置更高的门槛。不反省这个问题,设置再高的门槛也留不住。

This thinking is in the wrong direction. How many rich Americans choose to give up their nationality? What we need to consider is why so many officials, celebrities, rich people and famous scholars want to emigrate, not how to prevent them from doing so. If we don't reflect on this problem, we can never keep them no matter how strict the rules might be.

Zhi Qiangli echoed:

志强李:张兰就是甩给僵化体制的耳光。

Zhang Lan's emigration is a slap in the face to the rigid system.

Also, there are a lot of rules and policies that make it difficult for Chinese private companies to go public but foreign enterprises are exempt from these policies. Perhaps chief editor of Workers’ Daily Shi shusi’s words best summarized the problems China needs to tackle in the next decade:

石述思:目前争议继续,抛开爱不爱国的充满道德绑架的争论,一个黑色幽默的结果是:作为民营餐饮企业的老板,如果张兰不移民,那么,无论是国内A股市场还是香港资本市场,按照现行政策都难以完成上市融资的诉求,但现在移民了,上市却成功在望。当然,这样的结果不美好,但罪魁是谁呢?实际上,富豪资金外流,只是中国经济出现问题的一种表现、一个信号而已,与其谴责他们,不如推动改革共识的形成,呼唤中国塑造尊重私权、依法行政、进一步解放生产力的法治市场环境。

The controversy continues, patriotism aside; the result is a black comedy. As the boss of a private company, she couldn’t make her companies go public in China due to strict rules and difficulties with financing [esp. for restaurant chain business]; however, now that she has emigrated, she stands a better chance of taking her company public. Of course, the outcome is not perfect for China, but who’s responsible for this? The huge emigration trend is just a sign of China’s economic problems. Instead of blaming entrepreneurs, why don’t we promote the formation of consensus for reform and call for more respect for personal property rights, the rule of law and establishment of a just market environment in China?

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