If China Is an Economic Miracle, Why Are Their Millionaires Leaving?
The Wall Street Journal's extensive poll of Chinese millionaires found more than half are either considering emigrating or have already taken the steps to do so. What does that say about China's stability?
The findings are "highlighting worries among the business elite about their quality of life and financial prospects, despite the country's fast-paced growth," writes Jeremy Page of the Wall Street Journal. "Many Chinese who have profited most from the country's growth also express increasing concerns in private about social issues such as China's one-child policy, food safety, pollution, corruption, poor schooling, and a weak legal system."
The survey conducted by Bank of China and Hurun estimated there were 960,000 people with "personal assets" of at least 10 million yuan, and 60,000 people with 100 million yuan or more.
"Their survey, conducted in May to September, covered 18 major cities including Beijing, Shanghai, Wuhan, Nanjing, Dalian, and Suzhou, and interviewed respondents with an average age of 42 and average personal assets of 60 million yuan. The survey showed that 46% of respondents were considering emigrating, while an additional 14% had either already emigrated or filed immigration applications."
Of respondents with assets of 100 million yuan or more, 55% are inclined to to emigrate and 21% are already living oversees or have already made moves to begin the emigration process.
As for the millions of dollars that earned the participants a spot in the survey, the report showed it is unclear if much of the money would stay invested in China. And while that may be due to capital controls that make it difficult to move the money, there are apparently "substantial loopholes" in the system.
This is an important consideration since large outflows is listed as one of four systematic risks that could lead to a hard landing for China's economy, according to research report from Bank of America Merrill Lynch's strategy team in Hong Kong last month.
"One-third of respondents said they had assets overseas, and an additional 28% said they planned to invest abroad in the next three years. Half of those with overseas assets listed their children's education as the reason, while 32% cited emigration."
"In another indication of the jittery mood among China's rich, several Western embassies have also noted a marked increase this year in the number of applications for investment visas, a category that allows people to immigrate if they invest a certain amount of money, according to diplomats," Jeremy writes. "There is evidence, too, of an uptick in the number of Chinese people buying high-end properties in major Western cities, especially London, Sydney and New York, according to property analysts."
According to the survey, 40% of emigrating and interested in emigrating participants prefer the U.S as a destination. Canada comes in a close second at 37%, followed by Singapore and Europe at 14% and 11% respectively.
If the Chinese people's main motivation is to become successful, partially as a means to leave China (cash in hand), it's difficult to see how the country can have a sustainable economy. Indeed, the survey reflects poorly on China's outlook.
But despite extreme income inequality, the rising middle class in China reflects billions of people coming into more money and spurring economic growth. If the "other 99%" is moving up the economic ladder it surely outweighs the pessimism of the small crowd at the top.
Investing ideas -- short-seller targets
With all this negativity surrounding China, it should come as no surprise that short-sellers have taken notice.
But which Chinese companies are expected to see larger-than-average losses over the coming months? And more importantly, do you own any of these names?
To help you spot potential red flags, we collected data on short-seller trends and identified a list of Chinese stocks that have seen a significant increase in shares shorted over the last month.
In other words, short-sellers think these stocks are due for more losses.
Do you have any of these stocks on your watch list? Do you agree with the bearish sentiment surrounding these stocks?
List sorted by market cap. (Click here to access free, interactive tools to analyze these ideas.)
List compiled by Eben Esterhuizen, CFA:
1. Ctrip.com International (NAS: CTRP) : Provides travel services for hotel accommodations, airline tickets, and packaged tours in the People's Republic of China. Shares shorted have increased from 10.67M to 12.37M over the last month, an increase which represents about 1.28% of the company's float of 132.84M shares.
2. New Oriental Education & Technology Group (NYS: EDU) : Provides private educational services primarily in the People's Republic of China. Shares shorted have increased from 2.10M to 3.61M over the last month, an increase which represents about 1.2% of the company's float of 126.30M shares.
3. LDK Solar Co. (NYS: LDK) : Engages in the design, development, manufacture, and marketing of photovoltaic (PV) products; and development of power plant projects. Shares shorted have increased from 27.62M to 31.68M over the last month, an increase which represents about 5.96% of the company's float of 68.09M shares.
4. E-Commerce China Dangdang (NAS: DANG) : Operates as a business-to-consumer e-commerce company in the People's Republic of China. Shares shorted have increased from 8.71M to 9.37M over the last month, an increase which represents about 2.05% of the company's float of 32.13M shares.
5. VanceInfo Technologies (NYS: VIT) : Engages in the provision of information technology (IT) services. Shares shorted have increased from 9.22M to 10.69M over the last month, an increase which represents about 10.41% of the company's float of 14.12M shares.
6. Suntech Power Holdings (NYS: STP) : Engages in the design, development, manufacture, and marketing of photovoltaic (PV) products. Shares shorted have increased from 16.88M to 18.31M over the last month, an increase which represents about 1.12% of the company's float of 127.13M shares.
7. China Kanghui Holdings (NYS: KH) : Develops, manufactures, and markets orthopedic implants and associated instruments. Shares shorted have increased from 1.91M to 2.21M over the last month, an increase which represents about 3.11% of the company's float of 9.64M shares.
8. Fushi Copperweld (NAS: FSIN) : Develops, designs, manufactures, markets, and distributes bimetallic wire products, principally copper-clad aluminum (CCA) and copper-clad steel (CCS). Shares shorted have increased from 7.75M to 8.43M over the last month, an increase which represents about 3.% of the company's float of 22.67M shares.
9. 3SBio (NAS: SSRX) : Engages in the research, development, manufacture, and distribution of pharmaceutical products in the People's Republic of China. Shares shorted have increased from 92.03K to 250.76K over the last month, an increase which represents about 1.15% of the company's float of 13.81M shares.
10. JinkoSolar Holding (NYS: JKS) : Engages in the manufacture and sale of solar power products in China and internationally. Shares shorted have increased from 5.95M to 6.25M over the last month, an increase which represents about 2.65% of the company's float of 11.34M shares.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Disclosure: Kapitall's Eben Esterhuizen and Rebecca Lipman do not own any of the shares mentioned above. Short data sourced from Yahoo! Finance.
At the time this article was published The Motley Fool owns shares of Ctrip.com International. Motley Fool newsletter services have recommended buying shares of Ctrip.com International, New Oriental Education & Technology Group, and 3SBio. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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