Article provided by David Lesperance. Reprinted with permission.
Have you looked closely at the issues China faces? Now’s the time to prepare your Back-Up Plan…
NO MATTER WHAT PROBLEMS they’ve faced over multiple generations, the people of China are renowned for resilience in times of adversity. This is fortunate. In these days of pandemic transition, they also face increasing government financial and business controls, a worrying decline in population and continuing warlike threats over Taiwan. These growing crises dominate the nation’s affairs. Indeed, they cast a shadow over every social, economic and political activity.
I have been advising Chinese and Asian businesspeople for over 30 years on migration to countries that offer (among other benefits) the same rule-of-law protections to new immigrants as to natural-born inhabitants. Various waves of adverse events – with worrying implications – have recently hit the Chinese population. Therefore I am urging Chinese clients (and readers of this article) who share concerns about these chaotic times to tackle these events head-on by having ready a well-conceived Back-Up Plan in case they decide they need to quickly make a move. This starts with collecting inputs from the best human intelligence available to them… including from family, trusted and qualified friends and experienced top-quality advisors… then making a plan that works for them and their families.
Is it time to quit China? | The current issues
What are the major issues that face many (most?) successful Chinese businesspeople today? And what can they do now to safeguard their family and assets?
The recurrent threat of Covid hangs over everyone
Clearly the major threat for the moment and foreseeable future is Covid. With the reopening of China’s frontiers on January 8, nationals are permitted to travel internationally. Unfortunately, this also means that they can travel internally; in the process they can unintentionally re-infect those around them. No new nationwide Covid jabs have been offered since February. Even these had only an estimated 20-25% efficacy. Therefore, the potential for an explosion in case numbers is unpredictably high. Indeed, as of January 13, some 900 million people were recorded as currently being infected. This represents around 64% of the country’s population!
Worryingly, these figures are estimates that are more and more being questioned. For example, the official death figure since December 7 was just 60,000; however, independent analysts believe the real figure to be far higher.
The WHO has also said that China, which stopped reporting fatalities last week, was heavily under-reporting Covid deaths. Fear thrives on rumour and on lack of transparency.
China takes ‘Golden Shares’ from Top Tech Companies
Beijing has renewed its long-term drive to extend government control over tech companies. They are doing this by taking “golden shares.” These give them special rights over business decisions in two of its biggest tech companies, Alibaba and Tencent. This move marks a shift away from the policy of imposing hefty fines and sanctions in its recent two-year tech crackdown, which was launched after Alibaba founder, Jack Ma, criticised regulators. The CCP also recently took small equity stakes in Weibo and ByteDance, the parent of TikTok.
…China’s tax evasion crackdown using Big Data
In the summer of 2021, the government unveiled a five-year plan that included tighter regulation of much of the economy. New rules were introduced covering such areas as national security, technology and monopolies, science and education. As concerns have grown among Chinese companies listed in the West and Hong Kong, more stringent controls have been applied.
In March 2022, for example, the State Taxation Administration announced a crackdown on tax evasion in its booming live streaming industry. It has said that it would henceforth require platforms to report live streamers’ identities, income and profits every six months.
The Authority said on its website that live streaming and similar platforms had played important roles in recent years, but that:
“at the same time there are problems such as poor management by platforms, irregular commercial marketing behavior and tax evasion – which impede healthy development and damage social fairness and justice.”
During last year (2022) the targets of government investigations have included shell companies and false declarations of income in particular. They have also targeted high-earning individuals, celebrities and online influencers. The government’s “Big Data” resources will increasingly be used to sniff out abnormal income, supported by strict verification by tax authorities.
Will war finally erupt over Taiwan? If so – when?
The Taiwan issue has been in the headlines for most of the last year. It’s driven by continuous and threatening maneuvers from China’s air force and navy along the Taiwan Strait.
Since 1979, the One China Policy has been a foundation of diplomatic relations between the United States and Beijing. For decades, the U.S rejected any formal diplomatic relations with Taiwan. It appeased Beijing’s claims to the island nation as its own territory. Washington never referred to Taiwan as a “country” or “government.”
The status of Taiwan is not just the bedrock of Beijing’s policy agenda, but perhaps the most sensitive issue in US-China relations. The Communist Party has made it clear that “One China” is a prerequisite to relations with Beijing. It views any recognition of Taiwan’s sovereignty as a direct threat to its domestic nationalism.
Just 11 days before the departure of President Trump, the State Department delivered a resounding rejection of the One China Policy. It is now an open question as to how President Biden will flesh out this new position. In the event that China responds with open aggression, is the United States prepared to take military actions? Will the United States step up to ensure Taiwan’s capability for self-defense and come to Taiwan’s aid if necessary?
No matter how Biden follows up in 2023, two things are certain. Trump’s on-his-way-out-the-door announcement was a victory for Taiwan; a precedent-setting decision that will surely affect the next stages in US-China relations.
What would a war mean?
If war does come it would, in my opinion, be disastrous for both countries. And thus for the economies of both as well. As to livelihoods of the Chinese themselves, the prognosis is equally troubling. A report by the US Center for Strategic and International Studies (CSIT), forecasts:
- Taiwan’s ruined economy;
- US airbases destroyed;
- Two sunken carriers and between 10 and 20 destroyers sunk during the opening month of the conflict.
- Japanese bases would also be hit by missile strikes.
The report concludes that China would suffer the most. The country’s navy would be in “a shambles” and its amphibious forces “broken.” China is also projected to lose 138 ships and 155 aircraft. 10,000 soldiers will be killed while another 10,000 will be prisoners-of-war.
Some top observers have pointed out that Taiwan’s presidential election next year could offer Chinese President Xi Jinping an excuse for military aggression. Meanwhile, the US will be distracted by its own domestic contest for the White House.
The biggest crisis of all? A dramatic demographic crisis…
I have left the worst until last. There is no short, or even medium-term, solution that will make up for the projected drop in population. China’s giant population is slowly and steadily declining. It lost some 850,000 out of a population of 1.4 Billion in 2022 alone.
The really troubling figure comes from the UN’s latest forecast. This foresees a shrinkage of the Chinese population by 109 million in 2050… only 27 years hence. This figure is more than triple the decline of its previous forecast in 2019. This caused domestic demographers to lament that China will get old before it gets rich. This would slow the economy as revenues drop. In tandem Government debt would increase due to soaring health and welfare costs.
China’s birth-rate in 2022 was 6.77 births per 1,000 people. This is down from a rate of 7.52 births in 2021 – the lowest birth-rate on record. The death rate, the highest since 1974 during the Cultural Revolution, was 7.37 per 1,000 with the rate in 2021 being 7.18.
Much of this downturn is due to the notorious “one-child” policy that was imposed between 1980 and 2015. With sky-high education costs, many people were put off having more than one child in any case – or even children at all. The last three years of zero-Covid policies caused further damage to the birth rate.
How to protect your family wealth and well-being in the face of these challenges
Just as no one person on the ill-fated Titanic could stop that ship from sinking, reversing these troubling realities in China is beyond them, too. Moreover, it is not possible for one person or family to save all of the other passengers. The best they can do is save themselves and signal all who will listen to take similar action.
Having made the decision to potentially abandon the Chinese ship, the key to survival will be having a logical and effective Back-up Plan. Unfortunately, many families have developed plans which will fail when acted upon. This is because their current exit plan is the result of do-it-yourself efforts, or even worse suggested by unqualified salespeople who only suggest the alternative residences / citizenships that pay them the highest commission.
Recognising the ship known as China is taking on water and is in stormy waters is the first step. Developing a proper effective plan to abandon ship and arrive in a safe harbour elsewhere is the next step. Deciding when to leave is the final and decisive step.
Lesperance and Associates are trusted international tax and immigration advisors, providing specialized, holistic and un-biased solutions. In the complex world of international immigration, citizenship, and taxation, Lesperance & Associates stands out. As highly respected International Tax and Immigration advisors we pride ourselves with providing our clients with expert advice. We always fully consider our clients’ personal, family, business and succession situations when offering bespoke, holistic solutions. Moreover, Lesperance & Associates never accepts commissions or financial incentives from any Citizenship by Investment, Residence by Investment or Golden Visa type programs. Therefore, our clients can be assured that the advice they receive from our firm is in their best interest. We represent them, and only them — and not ourselves or any foreign government.
David Lesperance is one of the world’s leading international tax and immigration advisors. David has successfully advised scores of high and ultra high net-worth individuals and their families. He has provided pro bono advice to many governments on how to improve their Citizenship by Investment, Residence by Investment or “Golden Visa” type programs to better meet the needs of his global clients.
Resources: Article provided by David Lesperance, Lesperance & Associates. Published Feb 6, 2023. Used with permission.
Image: The Great Wall of China. Source: Joel Danielson, Unsplash.com