China’s ultra wealthy are fleeing and taking $1 trillion with them

China has a major $1 trillion problem as its ultra-wealthy flee the country and the fed-up middle class left behind decide to simply ‘opt out’ of the economy.

China’s economy is being crippled by a mass exodus of the ultra wealthy as well as a pervasive social movement that’s seeing young people ‘exit’ society, taking their productivity with them.

Experts say increasingly repressive policies targeting millionaires and billionaires has seen a flood of rich Chinese flee, fearful of their fortunes being fleeced by the Communist Party.

This year, an expected 15,200 millionaires are expected to ditch China, according to a report by British investment consultancy Henley & Partners.

American think tank the Council on Foreign Relations estimates a staggering US$738 billion (AU$1.09 trillion) was drained from China in the third quarter of 2022 alone.

As Forbes noted recently: “Smart money is bailing out of China.”

More and more Chinese are eager to flee the country to safeguard their wealth. Picture: Getty

At the same time, fed-up younger people are growing disillusioned with the famed Chinese work ethic and a lack of freedoms they see in the West, sparking a “lying flat” phenomenon.

Youth unemployment is surging, contributing to a hammering of national finances, worsened by a collapsing property market and eye-watering government debt.

Global rating agencies Fitch and Moody’s each downgraded the country’s sovereign credit position from stable to negative.

The cost to the economy, and to President Xi Jinping’s iron fist rule, are significant.

‘Mass exodus’ of rich Chinese

An investigation by the Hudson Institute’s China Centre found “hundreds of billions of dollars” flooded out of the country between 2015 and 2016 – the last “wave of capital flight”.

Now, a new “panic” is seeing wealthy Chinese stage a “mass exodus” to the United States, Singapore, the United Arab Emirates and Japan in particular.

Australia was once a popular destination not too long ago, but trade tensions and a crackdown on foreign investment have hammered its attractiveness as a wealth destination.

China’s economy is struggling and a mass exodus of the country’s mega rich isn’t helping. Picture: AFP

Miles Yu, director of the China Centre and a senior fellow at the Hudson Institute, said the Communist Party regime is aggressively pursuing a policy of wealth distribution, dubbed “common prosperity”.

“The whole government right now is clamping down on private enterprises, and non-state enterprise companies, and also, they try to get all sorts of ways to extract the money from wealthy individuals,” Mr Yu said recently on the China Insider podcast.

“The local government is broke right now. So that’s why if you have money inside China, even the middle class feel very unsafe, and they want to get out of there.”

A clash between capitalism and communism has reached boiling point as the “whims of the party leadership” target the ultra wealthy as a means of both control and capital raising.

As a result, he said “capital flight has become China’s national pastime”.

The repressive Communist Party regime has China’s wealthy worried. Picture: AFP

These days, merely speaking about the national economy in a negative way is enough to see one “disappeared”, like billionaire Alibaba founder Jack Ma, who was essentially exiled in 2019 for questioning Communist Party policy.

Another major driver of the mass exodus is the fact the property market in China has virtually collapsed, taking with it a huge chunk of household wealth.

“If you have money in China, you invest in two things. One is the stock market, but most of them, about 80 per cent of the family savings, were put into real estate in China,” Mr Yu said.

“That’s kind of a positive scheme people are living on, getting excited about, addicted to. Now China’s real estate has collapsed almost completely.”

Dodging China’s strict rules

The Communist Party has imposed strict rules on how much money can be taken out of the country, limiting it to a mere US$50,000 (AU$74,000) per year.

But the ultra wealth have “all kinds of illicit ways, legal or illegal” to circumvent the rule to smuggle out cash, Mr Yu said.

In 2023, close to 14,000 high net worth individuals fled China and managed to take huge amounts of money with them.

Aside from corruption and bribery, many developed intricate schemes to transfer their wealth, such as bogus lawsuits abroad that required payments of settlements, which were made from their Chinese accounts, he said.

“[That individual] might say, hey listen, even though I’m fined like $2 million, he said I’m fined $5 million. So, then the next extra difference $3 million he would legally get out of China.”

China’s crippled real estate sector is another major driver of the mass exodus.

There has also been a huge growth in underground money handlers, Bloomberg reports, who effectively run black market banks.

Some are even trusting total strangers they meet on social media to smuggle their money out.

A serious cultural phenomenon

There’s the ‘quiet quitting’ trend in the West, where mostly young workers secretly protest workplace inequalities and the hustle culture by doing the bare minimum.

In China, an even more serious phenomenon has emerged, dubbed “lying flat”, where hordes of fed-up young people are opting out of the economy entirely.

The movement first appeared in the shadow of Covid, a pushback to China’s notorious ‘996 system’ that sees most workers slave away from 9am to 9pm, six days a week.

After he criticised economic policy, Jack Ma had his company seized and was exiled, disappearing from public view. Picture: AFP

In the eyes of those lying flat, the only return for that extraordinary demand is exhaustion and minimal financial gain.

As a result, they retreat from society, adopt a sense of apathy, live as simply as possible, and refuse to contribute to the economy.

So concerned are Community Party officials that a series of state-controlled newspaper editorials, official edicts and even a statement from the president have circulated in recent years.

Almost a trillion dollars flooded out of China in a single three-month period. Picture: Reuters

“A happy life is achieved through struggle, and common prosperity depends on hard work and wisdom,” President Xi wrote in a 2021 journal article.

“It is necessary to prevent the solidification of social strata, smooth the upward flow channels, create opportunities for more people to become rich, form a development environment where everyone participates, and avoid ‘involution’ and ‘lying flat’.”

For those young and middle-class Chinese who aren’t retreating from society and the economy, many are eyeing ways to join the mega rich in escaping the country.

The South China Morning Post newspaper recent reported: “For China’s eager emigrants, the FOMO is real, and a move overseas may be now or never.

“Middle-class Chinese with means to move abroad see closing window of opportunity as countries tighten immigration policies, and the race is on as applications surge.”

And many of those without the financial means are simply becoming refugees, with the number of Chinese people requesting political asylum abroad hitting 120,000 in 2021, according to the United Nations.

Originally published as China’s ultra wealthy are fleeing and taking $1 trillion with them