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posted on 16 February 2015

Directions of Chinese Accelerated Capital Outflow

Written by , GEI Associate

Chinese accelerated capital outflows accelerated reaching $91.2 billion in the last quarter of 2014, This is a followup analysis to my original post, and focuses on the main directions of Chinese capital outflow.

With the slowdown of Chinese GDP growth rate in recent several years, Chinese capital outflow has been growing relative to GDP during the past decade, and the proportion is forecast to ascend further in the coming years. According to a relevant report, over half of wealthy Chinese plan to leave China. This puts a headwind on wealth accumulation in China.

Some economists have forecast this trend several years ago - arguing that economic repression causes more and more Chinese money flows to foreign markets.

There are three main components of Chinese capital outflow.

  • First, education abroad is a capital outflow. US universities are believed to provide a very high level of learning, Chinese students represents the largest percentage of international students in US and boost US colleges to all-time high foreign enrollment in the past several years. Chinese college students studying in US has exceeded 650,000 by the end of 2014, thus the total educational foreign investment from Chinese families reaches around 26 billion US dollars. This educational investment will not only improve academic and work skills of Chinese students but also promote the talent communications between China and developed countries.

  • Second, overseas travel is another capital outflow. With the rapid growth of Chinese real income, Chinese families have started to pursue higher life quality. Travel abroad has become an ideal method for them to not only relax themselves, but enjoy magnificent foreign cultures. Also shopping for luxury goods while travelling. Over 40% of foreign tourists to US and Canada are from China helped by an extended visa validity period to ten years in 2014. In the meanwhile, with the continuous depreciation of Euro and Japanese Yen against RMB, journeys to Japan and European countries are also attractive choices for Chinese tourists.

  • Third, investment in foreign real estate, purchase of foreign production / mining operations, and direct investment in foreign infrastructure is another major capital outflow. Due to the volatility and policy issues of Chinese real estate industry, more and more Chinese wealthy expand their investments into the international real estate markets. Based on the report from Knight Frank, investment from Chinese tripled in London in 2013. And in US real estate market, Chinese are also the top foreign investors. Chinese invested about 22 billion USD in US real estate. In addition, real estate markets in major cities in Canada and Australia also appeal to Chinese investors. In some sense, Chinese are one of the main groups of investors contributing to the stability and development of international real estate markets. Reak estate purchases generally comes from individual wealthy Chinese investors. But real estate is a small fraction of the total offshore investment [click on image below to be brought to an interactive page]

Overall, much of Chinese accelerated capital outflow is a reflection of the greater wealth of the Chinese.

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