Trading up: China’s elites seek second passports

After Covid-19, Chinese millionaires are itching to get out of the country. Or at least, have the option to leave. Following ultra-strict lockdowns in 2022, which left residents trapped in their homes for months, China’s high-net-worth individuals (HNWIs) have become eager to explore various migration schemes should the need to flee arise. That’s where second passports come in. While China does not recognize dual citizenship, Chinese investors have been pouring their wealth into foreign identities. In Q1 2023, applications for alternative residence and citizenship from East Asia were 210 percent higher compared to the year before, according to investment migration consultancy Henley & Partners. But a slew of regulatory changes is shifting where HNWIs choose to invest in 2024. Where are China’s richest people going, and what will their arrival mean for these countries? Chinese nationals seek stronger passport Although China boasts the world’s second largest population of millionaires, it also experiences the greatest net outflow of wealthy individuals. Henley & Partners reports that a net 13,500 HNWIs (those with an investable wealth of $1 million or more) migrated out of China in 2023. One of the reasons Chinese nationals are seeking a second passport is visa-free travel, says Aleksandra Smolen, Director of Business Development at investment migration firm Latitude. “The Chinese passport is weak compared with most of the developed country passports, even the Caribbean country passports,” the Hong Kong-based expert says. “And as you know, there’s the US with the highest number of millionaires and then there’s China, so there’s a lot of wealth [...] so they have money, they have means to travel, but they are limited by their passport.” Ms. Li, a 38-year-old from Shenzhen who requested to be identified by her surname for privacy reasons, is one such client seeking a stronger passport for her family. “My child has reached school age, and I am considering an international school. However, this school requires an overseas identity,” says Li. “After consulting with an agency and comparing different options, we decided that Antigua is best for us, and the price is within our budget. Antigua’s passport offers visa-free travel to many countries, unlike Chinese passports. It will be more convenient to travel later.” China ranks 62nd on the 2024 Henley Passport Index, with access to 85 destinations without a prior visa, as of January 10, 2024. Economic, social mobility top reasons for migration But a more pressing reason for investment migration, Smolen continues, is safety and security. “The other reason for having a second passport is in case something goes wrong in China. Then you can pull out your foreign passport and say, ‘I'm leaving because I'm a foreign national.’ And that happened during Covid.” “The other reason for having a second passport is in case something goes wrong in China. Then you can pull out your foreign passport and say, ‘I'm leaving because I'm a foreign national.’ And that happened during Covid.” Greater access to the world’s main markets has also become critical as China grapples with an economic downturn and a bursting property bubble. In fact, affluent Chinese have less diversified assets than their global counterparts, Smolen adds. “In developed countries, the wealthy people usually have at least 15 percent of that diversification where they have assets outside of their own country. But for Chinese, it’s only 4 to 5 percent. So, there’s a lot to catch up [on],” she says. Malta, Portugal shine However, regulatory changes in the past year have sent shockwaves throughout the industry. Just last month, Australia, where Chinese investors comprised 85 percent of successful investment migration applicants, scrapped its popular “golden visa” residency-by-investment scheme. In 2023, Ireland and the Netherlands announced the termination of their VIP visa programs, while Portugal revoked the option for real estate investments. But when one door closes, another opens. Smolen predicts that Malta will see an increase in demand, as it is the only country in the EU still offering passports through investment and boasts an English-speaking population. “I prefer EU countries, and I am engaged in financial-related business. Malta is the financial center of Europe,” says Mr. Chang, a 39-year-old from Shenzhen, who spoke on the condition of anonymity. Mr. Chang aims to list his company in Malta in the future. Additionally, Portugal remains a popular choice for investment migrants despite the recent changes. “Portugal is highly appreciated because of its high quality of life, safety, mild climate, health care, and investment opportunities,” says Frederik Pohl, CEO and founder of Pearls of Portugal, a leading platform for investors who wish to invest or live in Portugal. “Due to the international focus of the country, foreigners are very welcomed. Portugal is also extremely well connected with three main airports that have flights to every airport in Europe and the world.” According to Pohl, “probably close to 100 percent” of Chinese golden visa investors end up applying for citizenship after holding residency for five years. Pros and cons The question arises as to who actually benefits from these citizenship-by-investment programs. One of the reasons Australia canceled its program, for instance, is because it did not deliver what the country and economy needed, as stated by Australia’s Home Affairs Minister Clare O’Neil. The influx of Chinese wealth has also raised concerns about national security risks and corruption. Yet, Henley & Partners argues that foreign direct investment through investment migration can boost add value for a country. “Investment migration programs bring much-needed capital to sovereign states that would otherwise have to be raised through taxation or increased sovereign debt and budget deficits. Along with their families, HNWIs also bring to their host countries their wealth, networks, and the taxes they pay,” Dominic Volek, Head of Private Clients at Henley & Partners, tells Jing Daily. “Nation states can use these programs as an innovative financing tool by allocating inflows to social, infrastructure, and development projects that benefit their citizens. In doing so, they also boost public finances, foster economic growth, and create employment opportunities without increasing debt.” However, as investment migration becomes more prevalent, countries will need to stay competitive to retain private wealth. “Wealthy families and high-net-worth investors, regardless of their nationalities or where they live, are predictably looking to unlock access to countries that offer a better quality of life, top-tier healthcare, and world-class academic institutions for their families, but above all, they want the option of being able to live or relocate to safe, politically stable jurisdictions that protect and preserve their wealth. Countries that can offer this environment are likely to continue to outperform the rest,” Volek says. As these Chinese millionaires seek better opportunities beyond their domestic borders, businesses that cater to their desire for a better life will benefit, be it in education, healthcare, or travel. In 2024, the real luxury is mobility — the ability to choose where to live, work, and invest.

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Trading up: China’s elites seek second passports