The Ultimate Luxury in China? A Second passport

In a previous article, I mentioned that affluent Chinese consumers have matured and “are distinguishing themselves from the masses by embracing a more inconspicuous consumption.” Instead of acquiring products that signal status, the “aspirational class” is securing services that provide higher cultural capital, safety, comfort, and the best quality of life. In a nutshell, the priorities of the Chinese elite are now in line with those of Westerners. And with armed conflicts and terrorism on the rise, external threats, economic uncertainty, and fractions between China and the U.S. are causing “a severe economic slowdown or even a recession.” That’s when the investment in another citizenship (and passport) seems like an intelligent exit strategy. This doesn’t imply that everyone who acquires dual citizenship dreams of packing up and moving abroad, but it suggests that wealthy Chinese individuals are beginning to understand the importance of an advanced insurance policy. According to a 2014 survey by Barclays, 47 percent of Chinese millionaires with a net worth of $1.5 million aimed to move abroad over the next five years. Additionally, the New World Wealth shows that around 10,000 Chinese millionaires left the country in 2017 alone. Evidently, the rigorous restrictions designed by the Chinese government didn’t stop the capital flight and the mass emigration of wealthy individuals who ran abroad, hoping to safeguard their financial assets. Having said that, the practice of gaining another citizenship is not a novelty or a distinctive trait of the Chinese elite. Citizenship-by-Investment Programs or Economic Citizenship Programs have long attracted global HNWI and UHNWI. The South China Morning Post says that “mobility among the rich has increased worldwide,” and the top reasons for pursuing another citizenship remain educational and employment opportunities for the kids, safety, and more favorable economic conditions. Nevertheless, the last decade brought significant differences in demand. If in the late 2000s’, “Golden Visa” programs were targeting Russian oligarchs, today, that focus falls on affluent Hong-Kongers and Chinese. According to Forbes, between the last quarter of 2018 and the first quarter of 2019, the number of Chinese getting the U.K.’s Tier 1 Investment visa increased by 45 percent. The minimum investment for obtaining the visa amounts to £2 million ($2.5 million) which puts the U.K. in the same investment bracket as the U.S., Canada, New Zealand, and Australia. In other words, these world destinations are available to millionaires and billionaires only. Forbes says that “Chinese investors have made up as much as 85% of the EB-5 visas, the U.S's Tier 1 equivalent.” Nonetheless, globally, there are various “Golden Visa” packages available at lower price points. The Caribbean region, renowned for its natural beauty, stunning beaches, and offshore tax heavens, offers appealing citizenship-by-investment programs (CIPs). As an example, the dual island nation of Saint Kitts and Nevis (also known as The Federation of Saint Christopher and Nevis) has a population of only 56,413 people but the country is world famous for its CIP. According to the U.S. Department of State, St.Kitts and Nevis “had an estimated gross domestic product of USD 820.4 million in 2018, with forecast growth of 3.08 percent for 2019,” and the economy was fueled by its citizenship by investment program and tourism. This particular CIP is very popular with Chinese foreigners because it offers visa-free travel to all EU Schengen countries, including Switzerland, the U.K., and Ireland. There’s also no obligation to reside on the island and gives lifetime citizenship to the applicant and his entire family. The investment for this passport is relatively low at $150,000 (inclusive of government fees) or $195,000 for a family of up to four (real estate investment options are also available.) But there are other countries in the region attracting wealthy Chinese for even lower price brackets. Antigua and Barbuda’s citizenship-by-investment program has various options, with the lowest running at a $100,000 donation to the Antigua National Development Fund. Meanwhile, Grenada’s CIP starting price is $150,000 for the main applicant and $200,000 for a family of four, while St. Lucia’s CIP starts at $100,000 for the main applicant and $190,000 for a family of four. As expected, some European Union member states have their own citizenship by investment programs. In 2018 alone, Greece released 4,154 new Golden Visas to foreigners, from which 58% were given to Chinese investors. Given that Golden Visas are revitalizing the lagging economies of some European and Caribbean nations, it’s surprising that such programs still create controversies. Instead of focusing on the benefits of CIPs, the European Commission reports of their dangers like money laundering, tax evasion, corruption, and security risks. And these criticisms come from the homeland as well. In fact, China implemented the Common Reporting Standard (CRS) and increased efforts to crack down on most overseas investment. Despite this, the number of affluent Chinese individuals racing to buy second citizenships should only continue to thrive. As Forbes’ Ollie Williams says, “Many are rushing into such citizenship and residency schemes fearful that the investment threshold and entry requirements will become both more expensive and difficult to obtain in the near future.” Further complicating matters, Hong Kongers are allowed dual citizenship, but mainland Chinese aren’t. China doesn’t recognize dual nationality and citizenship for mainland citizens, and in recent years, the government was vigorously invalidating “the documents of anybody who violates Chinese law.” Therefore, gaining dual citizenship comes with certain risks for mainland Chinese citizens, especially if they are high-ranking officials or executives. According to the South China Morning Post, “For about a decade, any Chinese national who became a citizen of another country has had to surrender their Chinese passport, handing over the document when they applied for a visa to enter China.” According to the Post’s Kristin Huang, “By handing in their passport, [residents of China] are giving up Chinese household registration, the key to access to various government benefits, including housing subsidies, pensions, schools, and health care. Having a local ID can also streamline investment, inheritance and property ownership in China.” Thus, giving up these rights up (or being stripped of them) means a second passport can come with as many sacrifices as benefits. Yet a second citizenship remains a highly sought-after commodity not only because it provides safety and a valid exit strategy but also because it allows wealth preservation and financial privacy, and in a country like China that’s embroiled in a long trade war with the U.S. — where economic stability is being threatened and the government continues creating new tax laws to stop citizens from withholding their financial assets — a second citizenship scheme feels like a necessity.

The Ultimate Luxury in China? A Second passport

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Published August 26, 2019

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The Ultimate Luxury in China? A Second passport