China-- Danced With Wind And Danced With Fire

In June my friend Qiao Li explained the concept of China's Naked Officials for us:

"Naked officials" (裸体官员) are Chinese bureaucrats who send their family members overseas with the illegal assets they amassed through corruption and graft. These officials are “naked” as they are the only ones left behind, working hard to accumulate and funnel capitals overseas under the names of their relatives to popular destinations like the U.S., Canada and the U.K, investing their transferred funds in financial, real estate, energy, and other lucrative sectors. Banking on bribes to allow forced demolition, business deals, black jails, and news cover up, these “naked officials” not only use their wealth and power to sideline competing business interests, their immense economic clout obtained through official capacity also allows them to defeat other political factions within the party.

…The number of "naked officials" might be a small bunch, but they play an important role in the larger picture of global inequality. Since post-reform, Capitalism has become the new secular religion in China. While the government brutally cracks down on other popular religions and is fast to demolish Christian churches, no officials dare to criticize the wrongs done by unchecked Capitalism. The fleeing of these “naked officials” is a testament that China’s impressive growth will not sustain if inequality is left unaddressed.

The Wall Street Journal's Andrew Browne would have done well to take a look at Qiao Li's analysis of "naked officials" before his own piece on The Great Chinese Exodus this weekend. I'm sure many are leaving for "cleaner air, better schools and more opportunity," by corruption figures into the calculus her far more than Browne acknowledges. "A recent report," he wrote, "showed that 64% of China's rich are either migrating overseas or have plans to leave the country." And of the 100 million Chinese-- including tourists on vacation, of course ("the Chinese have overtaken Americans to become the world's biggest tourist spenders…The international hotel industry is increasingly tailoring its service to Chinese tastes")-- who left China last year, "rapidly growing numbers are college students and the wealthy, and many of them stay away for good. A survey by the Shanghai research firm Hurun Report shows that 64% of China's rich-- defined as those with assets of more than $1.6 million-- are either emigrating or planning to.

The decision to go is often a mix of push and pull. The elite are discovering that they can buy a comfortable lifestyle at surprisingly affordable prices in places such as California and the Australian Gold Coast, while no amount of money can purchase an escape in China from the immense problems afflicting its urban society: pollution, food safety, a broken education system. The new political era of President Xi Jinping, meanwhile, has created as much anxiety as hope.

Another aspect of this massive population outflow hasn't yet drawn much attention. Whatever their motives and wherever they go, those who depart will be shadowed by the organs of the Leninist state they've left behind. A sprawling bureaucracy-- the Overseas Chinese Affairs Office of the State Council-- exists to ensure that distance from the motherland doesn't dull their patriotism. Its goal is to safeguard loyalty to the Communist Party.

This often sets up an awkward dynamic between Chinese arrivals and the societies that take them in. While the newcomers try to fit in, Beijing makes every effort to use them in its campaign to project its political values, enhance its global image, harass its opponents and promote the use of standard Mandarin Chinese over the dialects spoken in Taiwan and Hong Kong.

…A college professor, who insisted on anonymity altogether ("Just call me an intellectual," he says), takes a darker view of China's prospects as he prepares to emigrate to the U.S., joining his two children, who both have postgraduate degrees from U.S. colleges.

Like many Chinese academics, the professor has a business or two on the side, although he hardly looks the part of an executive, unshaven and with crumpled pants riding 6 inches above his open sandals. In China, he pronounces, "Once you get rich, they arrest you."

That is an exaggeration, of course, but there is a propensity for entrepreneurs who appear on lists of the richest Chinese to end up in jail.

His real concern is that to get ahead, he's had to make compromises with his principles (he doesn't say bribes, but that is what he means). "I've been forced to prostitute myself," he says, and now he worries that it could all be snatched away. In China, a weak, corrupt legal system may sometimes work in favor of entrepreneurs while they're clawing their way up, cutting corners along the way, but it is almost always a liability once they've made it.

First-generation businessmen-- the ones who powered China's economic rise-- now dream of a secure retirement. That means legal safety in places like the U.S. and Canada.

…The flight of the rich recalls similar outflows from Hong Kong before the 1997 handover of the then-British colony to China and from Taiwan in an earlier period when its own future seemed imperiled. In those cases, businesspeople parked their families in places like Vancouver and Seattle and shuttled back and forth to Asia for business.

That is often the strategy in today's China, which has entered an uncertain transition. The economy is off the boil; property prices are sliding. Mr. Xi has amassed more power than any Chinese leader since Deng Xiaoping and is using it to crack down on corrupt officials while going after human rights lawyers, bloggers and civil society activists. That is ridding China of the kind of individual its government doesn't want but is also scaring away the creative types it needs.

Last year, the U.S. issued 6,895 visas to Chinese nationals under the EB-5 program, which allows foreigners to live in America if they invest a minimum of $500,000. South Koreans, the next largest group, got only 364 such visas. Canada this year closed down a similar program that had been swamped by Chinese demand.

Some of the wealth sluicing out of China is undoubtedly ill-gotten gains. The Chinese central bank estimates that corrupt officials may have siphoned off as much as $123 billion since the mid-1990s.

Still, he has more to say about "family holidays to destinations such as Kenya, Patagonia and Alaska at $10,000 per head" and how "Chinese are now the third-largest group of nationals landing in Antarctica, where tourists zip around the ice floes in Zodiac inflatables to watch penguins," than about the Naked Officials phenomena which is actually driving real economic dislocation in China-- not to mention another housing bubble America, especially on the West Coast, NYC, and Inside-the-Beltway. Earlier today, also in the Wall Street Journal Esther Fung repotted that (corrupt) Chinese officials are stampeding out of the luxury home market. Ostentation for public officials is supposedly out now.

"Officials are focused on selling their homes quickly, so they are willing to sell at 5% to 10% cheaper than the average prices of comparable homes," says Zhang Yan, a manager at Shanghai Centaline Property Consultants, who says he sells three to four homes to officials every quarter on average. Party members usually find a buyer within two weeks, he said, while most other sellers find buyers in about a month, waiting for a higher price.

…In one case late last year, an Inner Mongolia political leader named Wu Zhizhong was convicted of corruption, accepting bribes and embezzling public funds. Investigators said Mr. Wu owned 33 properties in China and one house in Canada. Xinhua, China's official news agency, said the keys to all of his homes could fill up an entire handbag.

Cai Bin, a former Guangzhou official dubbed "Uncle House" on social media, was also convicted last year for accepting bribes. Investigators said he and his family owned more than 20 homes.

Those cases, and others like them, have raised alarm bells among local government leaders.

…And it comes at a bad time for China's property market, which is facing a slump that many economists say poses the greatest risk to the country's economy. Housing sales in the first seven months this year fell 10.5%, according to official data issued last week.

According to real-estate agents, government officials make up as much as 20% of owners in the luxury housing market, and the agents say they simply aren't buying much anymore.

"A major way to corrupt an official is to give him a house as a gift," says Yan Jirong, a professor at the Peking University School of Government. "The anticorruption campaign is sending a signal" that such tactics should be stopped, he said.

Housing corruption is rampant in China. In June, the authorities in Guangxi Autonomous Region issued a statement warning civil servants "in possession of excess homes" to turn them in, though it left vague where and how to surrender such property.

…In a study from the University of Pennsylvania, economists found that Chinese government officials buy larger and more lavish homes than nonbureaucrats, despite earning typically 14% less in monthly income. Some officials also receive a price discount of nearly 4%, according to the study, which said that the size of the discount appears related to the power the official wields among local developers.

Bureaucrats in the study accounted for 7.1% of buyers-- a much higher percentage compared with the 0.86% proportion of bureaucrats in China's total population.

Many officials mask their homeownership by using the IDs of their chauffeurs, relatives or surrogate buyers, according to real-estate agents.