Last year, China’s outbound capital reached a historical high of 1 trillion US dollars, causing great concern within the Chinese Communist Party (CCP). However, instead of addressing the root cause of capital outflow, the CCP has opted to tighten control measures, imposing strict regulations on Chinese nationals purchasing overseas stocks, real estate, and insurance.
The Washington Post recently pointed out in an editorial that due to the risks posed by China’s economic slowdown, real estate market turbulence, and mounting local debt, an increasing number of affluent Chinese individuals are choosing to invest in overseas assets, unsettling the CCP.
Not long ago, the CCP ordered Facebook’s parent company, Meta, to cancel the $2.5 billion acquisition deal of the Chinese artificial intelligence startup, Manus (originally founded in China but later relocated operations and employees to Singapore), as a warning to prevent other Chinese companies from following suit.
This month, the CCP announced a series of new regulations further restricting Chinese engineers working abroad, prohibiting the unauthorized transfer of data, technology, goods, or services to foreign companies without CCP approval. By doing so, the CCP aims to lock in capital, technology, and talent domestically to prevent the risk of losing both resources and human capital.
The article indicates that the CCP’s actions are twofold – to create a firewall in the artificial intelligence competition to guard against the United States and to boost domestic consumption. However, these measures inadvertently expose the fundamental flaws of the CCP system, deepening its isolation globally and escalating the anger among the Chinese general public.
The author points out that this is a typical tactic used by insecure leaders under an authoritarian system, where their instinct is to tighten control over various aspects of people’s lives – from what they read, where they travel, to even how many children they have, with the CCP meddling in every aspect.
Traditionally, Chinese people have a habit of saving money, with the savings rate of an average Chinese household being around one-third of disposable income, while American households save less than 4%. Wealthy Chinese individuals are surely seeking safer and more efficient investment channels. Overseas insurance is highly popular in mainland China, with many Chinese and Hong Kong graduates from prestigious universities aspiring for their first job to be in selling overseas insurance.
After the CCP’s new regulations come into effect on July 1st, Chinese individuals will have to resort to more discreet ways to transfer funds abroad, which may not yield the same investment returns, ultimately affecting Chinese entrepreneurs negatively.
Additionally, technology startups often need seed funding from overseas, and the CCP’s move to cut off external capital and global financing channels will stifle the innovation it claims to promote. Only when funds and talent flow towards the best ideas will the economy thrive and grow prosperously.