A Blog by Jonathan Low

 

Dec 1, 2013

Follow the Money? Wealthy Chinese Stash $650 Billion in Overseas Assets

Wealthy Chinese may be responsible for the run on western assets like wine, jewelry and art. Due to the change in Chinese rulers and their attendant  crack-down on corruption they have promised, life has become a bit less certain for those Chinese who profited in real estate, manufacturing and other businesses.

The result has led to dramatic increases in the prices for signature properties in London, New York, Paris and Vancouver; jewelry - especially collectible quality diamonds - as well as vintage wines and notable paintings. Anything, it seems, to enable those with liquidity who can invest in assets that can be stored in the west both to appreciate - and to serve as a source of flight capital should it be necessary.

Quality of life issues remain a concern: pollution, a capricious legal system and education being other areas of note. But the very human desire to preserve one's wealth - however legitimate its origins - continues to be a significant motivational tool. As the following article explains, the amounts being exported are substantial enough to move markets, the bravura performance of autumn art auctions being one recent example. But it is reasonable to expect that the Chinese government is not ignorant of this activity and those in the west hoping to cash in as they did with previous waves of Iranian, Russian and Middle Eastern wealth transfer may find the phenomenon rather more short-lived than they might have hoped. JL

Robert Frank reports in CNBC:

It's one of the largest and most rapid wealth migrations of our time: hundreds of billions of dollars, and waves of millionaires flowing out of China to overseas destinations.
According to WealthInsight, the Chinese wealthy now have about $658 billion stashed in offshore assets. Boston Consulting Group puts the number lower, at around $450 billion, but says offshore investments are expected to double in the next three years.
A study from Bain Consulting found that half of China's ultrawealthy—those with $16 million or more in wealth—now have investments overseas.
And it's not just the money that's exiting the country. The wealthy are increasingly following their money overseas.
A study by Hurun and Bank of China found that more than half of China's millionaires are considering emigrating or have already taken steps to move overseas.

Many experts say that the wealthy are moving to protect their wealth, their health and their families. With China increasingly cracking down on ill-gotten gains and corruption, many of the politically connected wealthy are looking for safer havens abroad.

They are also looking for better environments for their children—with better schools and cleaner air.
"Whether it is the perceived political instability or perhaps lack of educational opportunities, or pollution in the urban environments there, when you put those altogether ... and you mix that with the wealth that's present in China now, it really makes sense that there are folks there looking to explore these opportunities," said Peter Joseph of the Association to Invest in the USA, which represents investor-visa programs in the U.S.

Some say the capital flight and millionaire migration are normal consequences of rising wealth. Oliver Williams, of WealthInsight, said that the Chinese wealthy have about 13 percent of their wealth overseas—below the global average of 20 percent to 30 percent.
Still, much of China's offshore wealth is moved illegally or in the shadow economy. China maintains a closed capital account and Chinese citizens are generally not permitted to move more than $50,000 out of the country. So reliable data on exactly how much money is moving out remains unclear.
But the global buying spree by wealthy Chinese suggests the numbers may be far higher than reported. Wealthy Chinese buyers purchased more than $8 billion worth of residential real estate in the U.S. in the 12 months ended in March, according to the National Association of Realtors. China's share of foreign-purchased residential real estate has jumped 50 percent since 2011.
One of China's richest women, Zhang Xin of developer SOHO China, recently bought a townhouse in Manhattan for $26 million, according to reports.

China's wealthy also are pouring money into collectibles and art. Billionaire Wang Jianlin and his company Dalian Wanda last month bought a Picasso at a Christie's auction for $28 million. Bidding from Chinese buyers was strong throughout the auctions, according to dealers and gallerists.
It's also going to wine and diamonds. Diamond dealers say more than half of today's collectible diamonds are going to Chinese buyers. And on Saturday, the world's most expensive case of wine—1978 Romanée-Conti—sold in Hong Kong for $476,000.

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