A Chinese puzzle

If things are going as well in China as they appear to be why are so many of the wealthy and talented leaving?

For years, the Chinese economy has grown at one of the highest rates of any country in the world. Even during the recent global downturn, China continued to grow rapidly, even though at a slower rate than before.

To be sure, there were problems as there always are: some of the massive infrastructure investments were ill-conceived and/or badly executed; income and regional disparities increased; many local governments rode roughshod over their inhabitants, often sparking violent protests; too much investment went into traditional industry and not enough into hi-tech; much of the growth was based on stolen or extorted technology; massive corruption; an artificial exchange-rate peg favored exports and discouraged imports unfairly; there was a property and a construction bubble, and others. Much of this commentary was exaggerated and has recently diminished. In the meantime, a peaceful transition of power took place in Beijing from one generation of party and state leaders to another, all in the same mode to be sure - significant political reform is very unlikely. China is flexing its foreign policy and military muscle in ways not seen before, and its armed forces are being enhanced at a rapid rate.

All in all, the picture looks pretty good for the continuation of Chinese growth and international influence, both economically and politically, particularly as the influence and power of both Europe and the United States declines.

Which makes certain current indisputable facts rather strange:

  • Capital flight from China on the part of the Chinese middle class and business community is increasing rapidly and steadily. The methods used to circumvent capital controls are as varied as they are ingenious, but one way is almost laughably low-tech: customs agents, particularly in Canada and the US, are intercepting more and more suitcases full of hard cash brought in by Chinese travelers.
  • Emigration is increasing exponentially, especially of people of means and the highly-educated, and directed particularly to Canada, the United States, Australia and New Zealand. The Yangtze Evening News, quoting a study by Bain Consulting and the Merchants Bank, has concluded that an astonishing 27% of business owners with assets of over $16 million have completed the emigration process, and that an even more astonishing 47% are thinking of doing so. Frankly speaking, even half those figures would be very surprising.
What does it mean? One could argue that it is simply the desire to protect themselves, their families and their assets from danger. But then the questions immediately arises, what danger? If things are going so well in China, why are those with brains and fortunes fleeing the country? Could it be that they know something that we don't know? If so, what? Compared with the Chinese phenomenon, human and capital outflows from other dictatorships historically have been modest. It is hard to exaggerate the magnitude of the Chinese situation, even taking into account the possibility of some exaggeration.

As I have said in previous articles, the Far East and South Asia would seem to be where future crises, political, social and economic, are likely to emerge in the near future, from a meltdown in Pakistan, to Chinese military adventurism, to internal commotion in the Middle Kingdom. Keep close watch.

Norman A. Bailey, Ph.D., is Adjunct Professor of Economic Statecraft at The Institute of World Politics, Washington, DC, and a researcher at the Center for National Security Studies, University of Haifa.

Published by Globes [online], Israel business news - www.globes-online.com - on January 20, 2013

© Copyright of Globes Publisher Itonut (1983) Ltd. 2013

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