Wealth in Asia

Rich Chinese may pour billions into US


China's loss may be America's gain.

A small survey released by FT Confidential this week found that China's economic slowdown and stock market gyrations are likely to spur more of its wealthy to put money overseas—particularly in the U.S.

According to the study's findings, 61 percent of the rich Chinese surveyed in July plan to increase their overseas holdings over the next two years. Almost half said they plan to offshore more than 30 percent of their fortunes.

While the survey, which polled only 77 people, should be taken with a grain of salt, its findings are in keeping with broader research.

Lane Oatey | Getty Images

The Hurun Report last year found that more than half of China's wealthy plan to emigrate or have already taken steps to move their families and fortunes overseas. And a study by WealthInsight found that the Chinese wealthy already have $658 billion overseas.

According to that intelligence firm, China's roughly 1 million millionaires have amassed about $16 trillion in wealth. If even 1 percent of that sum found its way to the U.S., that would equal $160 billion in Chinese inflows.

According to the FT study, 42 percent of the wealthy Chinese cited the U.S. as the preferred destination for their cash. They indicated much of that investment would go into businesses, commercial investments and financial products.

Yet brokers and real estate analysts say billions of dollars in Chinese wealth is also likely to pour into real estate in the coming year—mostly in coastal cities including San Francisco, Los Angeles and New York.

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The Chinese were the largest overseas buyers of U.S. real estate last year, with those from China, Hong Kong and Taiwan accounting for $28.6 billion in sales, according to the National Association of Realtors.

Analysts say the slowing Chinese economy and volatile stock markets have already led to a surge in interest from the overseas Chinese in U.S. real estate in recent weeks, despite turmoil in Wall Street markets.

"Brokers are getting a lot of calls right now from Asian buyers," said Jonathan Miller, president and CEO of the appraisal firm Miller Samuel. "If you're a wealthy investor in China, you don't have many choices. You could put money into the Chinese housing market, but that's a bubble. You could invest in the stock market, but that's not transparent and it's volatile. "

There are two other forces that may drive more wealth out of China—capital controls and inheritance taxes. As China relaxes its capital controls, it will become easier for wealthy Chinese to move money offshore and buy overseas real estate. The new rules will allow Chinese residents with at least $161,000 to invest up to 50 percent of their assets overseas, if they get approval.

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What's more, Chinese legislators have been reportedly considering an inheritance tax increase from 10 percent to 30 percent. While the status of the proposed changes is unclear, many of the rich are deciding not to wait for the tax hike and are moving money offshore and out of reach of the government.

"The smart money has been pulling out of China," Miller said. "And I think you'll seen an even broader cross section move money out in the future."

Liam Bailey, head of research at London-based real estate firm Knight Frank, said wealth flight from China is still in its early stages, as more of the Chinese wealthy look to diversify their wealth outside the country.

"It's still in an embryonic phase," he said. "Over time, this market will mature as the process of investing overseas becomes a little easier."