China's strong performance in the London Olympics is just another indicator of its phenomenal rise as a global power, but has the country's rapid growth peaked?
A recent report released by China’s State Administration of Foreign Exchange (SAFE) indicates that for the first time since China's economic boom in 1998, there is a deficit in the overall balance of payments. With more money leaving China than entering it, there is a growing concern among officials in the Chinese government, which has become accustomed to an inflow of capital from other countries.
Even more telling is the growing trend of wealthy individuals (each with over $1.6 million) leaving China in the past few years. According to the SAFE report, over 16% of the country's one million wealthy individuals have emigrated, with a projected 44% intending to follow suit. Many of them have already sent their children abroad for higher education, and some have invested heavily in U.S. real estate.
For example, within the last two years, Chinese companies have already initiated projects to develop suburban communities near the economic centers of Toledo and Detroit that cater exclusively to China's nouveau riche. Also, some American developers and agencies are beginning to focus exclusively on Chinese buyers who are snapping up luxury real estate in major cities such as New York, Los Angeles, and Miami. The fall in U.S. real-estate during the housing-crisis has attracted many buyers from around the world, while China's real-estate restrictions and the appreciating yuan continue to drive the Chinese to invest outside their own country.
More importantly, people are confident in a stability that China may not have. Di Meng, a Chinese student attending the University of Southern California, says, "Compared to China, the United States is relatively stable. [...] China has a purchase limit policy because the Chinese government tried to control and cool down the housing market in China, so if you've already bought a home in China, they do not support you to buy another."
Before the United States starts rejoicing at this trend reversal in their economic rival, it should be noted that the drain is not unilateral. Immigrants to the U.S. and Americans with immigrant parents are increasingly returning or moving to pursue new career opportunities in the rapidly developing economies of their ancestral homelands such as China and India. Disheartened and frustrated by the economic recession in the U.S. and Europe, graduates and young professionals are attracted to exciting entrepreneurial opportunities and the economic incentives (e.g. higher salaries, lower taxes) China and India are willing to offer to Western-educated individuals. Thus, talent that could be used to develop the U.S. economy is looking for employment elsewhere, and little is being done to retain them.
Should China be concerned?
It is difficult to predict how these trends will play out, but for now, China's economy continues to grow while the government tries to find a balance between rapid growth and effective regulation. Zhiwei Zhang, a China economist at the Japanese bank Nomura, notes "the capital outflow is not an alarming sign in itself, but just reflects economic worries that are already well-known.”
The end of Olympics 2012 may have marked a temporary hiatus in the athletic rivalry between the U.S. and China, but the economic rivalry between the two powers continues.