China’s government recently sent 80 children of billionaires to an austere camp in the countryside to learn about traditional values and ethics.
The move was a backlash against the popularly perceived gaudy and extravagant lifestyles of nouveau rich children – or fuerdai (富二代). It seems these brats have become an embarrassment to a regime clinging on to its supposed Socialist credentials. Fuerdai are the subject of numerous movies and TV series; the storylines are often based on how their feckless and selfish actions threaten their families’ fortunes.
While many Chinese middle class parents send their children abroad for education, the government’s reaction through the media and corrective camps stems from the fact that many in China strongly resent the super rich, and their children even more so. Extravagant displays of wealth are discouraged by the government, but social media means in practice it is impossible to control. The populist envy is corrosive, highlighting the country’s growing class divisions and widespread corruption.
A generation ago, citizens of the PRC were extremely lucky if they got the chance to go abroad. The advent of market reforms in the 1990s and relaxation of travel restrictions combined with new-found wealth gave many the opportunity for trips overseas for the first time.
Now, moving abroad for education and leisure has become standard for the middle class. The new breed of super-wealthy Chinese business owners and their families search for higher living standards, first-class education and a haven to preserve their newfound riches. A recent report published by Hunrun, a firm which tracks China’s wealthy and luxury market, showed that over a quarter of US dollar millionaires had residencies overseas and 12% had foreign passports.
On Bond Street
In host countries, the newly minted Chinese are a boon for real estate agents, schools, universities, wealth managers, and luxury goods merchants.
A watch shop owner I met on Bond Street in London described a typical event for Chinese customers: an extravagant private dinner above the shop with free flowing champagne and baijiu, followed by a talk on the history and pedigree of the watch brand. The evening would conclude with sales of new and antique watches – emblematic gifts for business partners and family.
The biggest problem the shop owner faced was getting people to commit to a dinner – most ideal customers would typically only be in London for a few days at a time, with packed business schedules.
In a similar vein, Chinese purchases of art – particularly old masters and Chinese art in the West – have risen exponentially in recent years, along with classic cars and fine wines.
From a Chinese point of view buying property or settling abroad in a western city is a hedge against turbulence at home. The head of the family will continue to develop business interests in China while the families stays in Canada, Europe or the US, enjoying life in a foreign city.
A major pull factor for those with families is the environment in Western cities; the polluted and crowded cities of China are not ideal places to bring up children – hence the popularity of Singapore, Vancouver and Sydney as alternative destinations, which are clean-aired paradises by comparison to Chinese megacities.
Like their peers elsewhere, China’s millionaires and billionaires are lured by tropical tax havens; the British Virgin Islands is a particularly popular destination. The recent Panama Papers unveiled a host of Chinese politicians and businessmen hiding cash in the island’s secretive accounts. The leak highlighted a major dilemma: officially the government must crack down on tax avoidance and the use of tax havens (although most activity is legal if the proceeds are earned outside China). But with many party officials also using these tax havens, the government instead ordered censorship of all references to the Panama Papers.
China’s wealthy have reasonable cause to turn for shelter overseas. The government has a history of taking down corrupt businesspeople who fail to toe the line politically. Many have lost their fortune and ended up in prison without fair trial.
For this reason alone, we can expect to see China’s wealthy keep one foot in the West for the foreseeable future – whatever cautionary tales state media spins on those reckless fuerdai.
Merlin Linehan has worked in development finance within Eastern Europe and Asia, and spends much of his time investigating the risks and opportunities that are created from the ongoing expansion of Chinese businesses that invest overseas in emerging markets.