An insider’s look at the factors driving China’s new rich to invest their money in global real estate markets such as Vancouver, featuring Anthropologist and author John Osburg.
Matt & Adam sit down to interview Professor John Osburg, a Fellow at the Public Intellectual Program at the National Committee on US-China relations. He is an Assistant Professor at the University of Rochester and the author of “Anxious Wealth: Money and Morality among China’s New Rich.”
Among Chinese businesspeople, there is usually a strong connection between success and banqueting, clubbing and bribery with politicians and the powerful. These relationships create unstable wealth for the successful, as anti-corruption campaigns or associations with certain politicians leave them open to arrest or wealth seizure. Even among honest business owners, once they become successful, they require some protection from officials to shield them from their competitors who are also leveraging relationships with the powerful. This is why the rich are anxious.
Unlike in countries like Canada or the United States, the state controls vast sectors of the economy of China. In industries like mining, you have to be close to people in power before you can obtain a license. The financial system is still largely state controlled as well, and it is complicated for private individuals to get access to capital.
The Chinese Business Culture
China is a country where a lot of drinking occurs and one way to form a business connection is to lavish guests with food and drink. Many Chinese businessmen often spend up to half a million dollars in clubs over the course of a year. Sex is also key when building business relationships.
The Americans might want to involve third party lobbyists to handle the rough edges of a deal; the Chinese are much more personal and will rather handle such business matters over a banquet or at karaoke or similar events.
Factors driving wealthy Chinese to pull their money out of their country
- Lifestyle factors.
The Chinese education system is often seen as turning students to “obedient test takers” rather than bold risk takers, and Chinas wealthy men will prefer overseas education. There are also pollution and food safety concerns.
- Political factors
People who made their money through connections are anxious and uncertain about when the next anti-corruption push will potentially bankrupt them, so they take their money abroad.
If everyone around is buying properties abroad, then why not me?
Houses in the suburbs of big Chinese cities are expensive and buying into a market like Vancouver or California for the same amount of money is still seen as a better deal.
The Chinese will likely not be bothered by the 15% foreign buyers’ tax. They don’t see these properties as investments, and a lot are even willing to take a loss on those assets as they just want to park money outside of China. Investing in global real estate is quite a lot easier than putting your money in the stock exchange. There have been controls on capital outflow from China, and the ongoing anti-corruption campaign is now preventing the Chinese from keeping money abroad.