China’s Overseas Population: Leveraging A Critical Asset

People of Chinese origin currently constitute one of the largest overseas populations in the world, with over 50m people studying working and living outside of China today. The country has a long tradition of emigration. Indeed, since the 16th century, China has seen multiple populations waves move to North America and Southeast Asia. Countries such as Singapore, Thailand, Malaysia and Indonesia host flourishing Chinese communities, which play an active and in some cases dominant role in their respective countries’ finance and trade with China. Although the Chinese language makes a distinction between overseas people of Chinese origin (ethnic Chinese, called Huayi) and P.R.C citizens residing in other countries (Huaqiao), most overseas people of Chinese origin still identify themselves as “Chinese” and are identified as such by mainland Chinese. In addition to these well-established communities, China has also seen a more recent wave of students and professionals leave China; there are currently in excess of 5m PRC nationals working outside of their country and China is the world's top source of overseas students, having sent more than 2.6m students abroad since 1978.

The Global Asset

Regardless of their citizenship, overseas Chinese represent a significant potential resource for mainland China. With estimated total liquid assets of US$1.5–2trillion, the Chinese diaspora possesses a significant amount of capital, as well as expertise and relationships to be tapped for the continuing development of the mainland (and indeed for the rest of the world). In general, overseas Chinese are more closely involved with China economically than the Indian diaspora with India. While India leads China in terms of total remittance volumes from its overseas population (US$70bn annually vs. US$50bn), China has been somewhat more successful at attracting investment capital and talent in a structured fashion, specifically in the following areas:

  • Foreign Direct Investment. Over the last decade, the Chinese government has taken a number of steps towards attracting FDI from overseas China, including investor friendly policies for capital flow into the manufacturing sector, and setting up of 200+ ‘Chinese Cultural Centres’ which help the diaspora connect with local Chinese governments. Of the c.$250bn of FDI attracted by China in 2012 65% was contributed by countries with significant overseas Chinese populations. The analysis on the right shows the correlation between a country’s allocation of a given level of FDI to the size of Chinese population, demonstrating the strong level of investment activity by overseas Chinese in China.
  • Entrepreneurship and Intellectual Property. Further, China has also been better at getting its nationals and other overseas Chinese to return and start companies. The early students sent abroad were already the most gifted and brightest students in China at the time and the scarce and high-value skillsets acquired abroad gave them additional unique opportunities to participate in China’s economic transformation upon their return. Returnee entrepreneurs such as Robin Li, now China’s second richest man, founded many of what are now the leading companies in their sectors, such as Baidu, China’s answer to Google. Since this time, China has continued to provide a series of incentives and inducements to continue to attract (particularly returnee) entrepreneurship, including the provision of free real estate or office space in high-tech parks, preferential tax treatment, preferential access to banking and credit, venture fund matching and streamlined regulatory processes. As a measure of the success of these initiatives, in total, it is estimated that approximately a quarter of all the tech start-ups in China are founded by returnees, rather than international or local entrepreneurs.
  • Talent and Labour. Similarly China has worked hard to induce its overseas talent, students in particular, to return to the mainland to work. The number of students studying aboard skyrocketed since the turn of the millennium, with more and more ambitious young people subsequently chosing to stay in abroad. China has managed to increase the rate of return of overseas Chinese students back to the mainland following completion of the schooling from a low of 25% in 2005 to 33% in 2010. However, of those that return, 90% cite China’s economic growth and the opportunity to participate in the growth story as key reasons for their return , rather than any specific proactive measures by central or local government.

So, the efforts of the Chinese government in attracting overseas “Chinese” assets have been significant and has dovetailed well with, rather than been the cause of, China’s economic expansion. A 10% baseline return underpinned by GDP growth has been an attractive proposition to most investors and entrepreneurs, and has created a fair degree of risk and uncertainty tolerance. With economic growth slowing steadily though, it is questionable whether China will continue to represent the most attractive opportunity for investment, employment and entrepreneurship, or whether overseas Chinese will look elsewhere for opportunities.

Attracting and Keeping Talent in China: Policy and Development Areas

The overseas Chinese community is one of the most dynamic economic forces in their resident countries and tends of be a high performer in education too. The challenge for China in continuing to harness its overseas population is of course not limited to solely continuing to deliver economic growth. Although continued growth is key, even at the record low 7.5% GDP growth predicted for this year, China is significantly outgrowing virtually every other major economy in the world. The broader issue is that neither capital nor talent is attracted to a given destination solely by financial considerations. China will of course need to create a comprehensively attractive package of conditions for the smartest and wealthiest people, who have a multitude of choices regarding where to live and invest. The first wave of opening China from ~1980 to ~2010 was successful at attracting overseas Chinese to the Chinese miracle. As we pointed out in the Sign of September- 2012, we are now in the phase of the China Growth Story, which is still an attractive story but not a miracle. Today’s leaders will need to reconceive the proposition that attracts the next wave of overseas Chinese (and other foreigners too). President Xi’s team recognize the challenge and have announced the aim of transforming China through a new “China Dream” a broad sweeping vision that incorporates a vision of sustainable development, national renewal and economic and political reform with the long term outlook of creating a stronger, wealthier and better society. The implementation of this vision requires top talent to return in large numbers, for the old business practices to be swept aside and for the environment to be created where new industries and new ways are born.

The waves of change that can support the China Dream in meeting its need to attract (and retain) the overseas Chinese population’s capital and talent will need to include the following policy focus areas. Attracting overseas Chinese to the mainland is not an exercise than can be conducted in isolation to China’s broader policy agenda. Many of the items below have an impact far beyond capital and migration flows of ethnic Chinese to China - they touch upon the core political, economic and social issues China must address as it transitions from an industrialising, emerging economy to a sustainable global economic leader.

  1. Policy Focus Area One: Reducing China Risk. We are now past the honeymoon phase of fawning admiration of China’s achievements and the global media increasingly paints China as a difficult and complex place to do business. Last week’s China headlines alone for example include “Investment Hangover Hits China Groups” (FT), “China’s Rising Risks” (WSJ) and “China Probes State-Assets Head as Anti-Graft Push Widens” (Bloomberg). Without a more transparent playing field, capital and a talent will continue to seek lower risk economic opportunities abroad.The big hurdles include corruption and regulatory uncertainty and it is unclear whether the current return spread between the US and China is sufficient to cover the incremental risks for investors. To lower the personal and institutional risk to the overseas talent pool entering China, policy architects need to redesign the system. The recent GSK scandal has highlighted the perceived need for international participants to participate in a corrupt local system of enterprise to compete effectively. As the government rightly cracks down on corruption, particularly where it is perceived to be endemic, the very people that China wants to attract may feel at personal risk. China today ranks a lowly 80th on Transparency International’s Corruptions Perceptions Index: over the longer-term, without a more transparent playing field, capital and talent will continue to seek lower risk economic opportunities abroad. However, beyond corruption, China will also need to reduce risk by streamlining its bureaucracy and reducing barriers to entrepreneurship. In terms of the ease of doing business, China’s ranking is even lower than its corruption perceptions ranking, currently 91st on the World Bank’s 2013 Doing Business Index. With regards to critical processes such as protecting investors, it ranks even lower, at 100th. China’s leaders will clearly need to address these issues to increase investor and other China entrant’s confidence and participation
  2. Policy Focus Area Two: Improving Absolute and Comparative Returns. The return to economic health of the US in the short term and its cost structure post the exploitation of shale gas in the medium term poses a serious challenge to China’s attractiveness from a risk-reward perspective. America with 100 to 150 years of low cost shale gas energy will re-ignite its domestic economy, produce more at home and energise a new wave of US corporations to sell into global markets. Relative equity market performances is clearly an imperfect corollary to comparing the returns of direct investments and operating businesses on the ground but the five year returns of the S&P500 at 28% are in a different league than the (13)% negative return of the Shanghai SSE Composite Index. When this strong disparity in market performance is further supported by more stable industry level growth in the US, many overseas Chinese (and foreign direct investors) will find it attractive to exploit this, and other international opportunities, rather than enter the more complex world of China’s Rubik’s Cube of local-regional-central affairs where political clout and business often intersect. In a similar fashion, an estimated US$225-300bn of capita equal to 3-4% of China’s annual economic output leaves China every year, as savers and wealthy Chinese seek to invest in offshore opportunities, despite strict capital controls limiting capital outflows.
  3. Policy Focus Area Three: Deregulation and Privatisation. China’s next wave of deregulation and privatisation offers the opportunity to attract whole new waves of talent and investment. The first wave opened up manufacturing and some services industries and led to US$1.8 trillion of foreign capital being invested in China. The next wave needs to target two areas. Firstly, the target needs to be the sectors that are massive drivers of growth, value creation and innovation in the most advanced nations. These include financial services, business and professional services, healthcare and education, which cumulatively represent nearly 50% of GDP in developed countries. Secondly, the target needs to be the lagging industries that continue older more employment than efficiency related practices. These include a number of sectors already open to foreign competition but dominated by local and state owned companies such as chemicals, pharmaceuticals and basic materials, with the chemical sector alone representing US$0.8 trillion or 10% of GDP. Such a story would create a whole new wave of interest from not just overseas Chinese but also the world’s entrepreneurs, capital markets and corporations.
  4. Policy Focus Area Four: Re-engineering the Quality of Life. The rate of urbanisation in China is expected to grow from 52% today to 60% by 2020. Two challenges stand out in delivering the quality rather than quantity are the quality of the environment and the beauty and fit-for-purpose of the build-out. Wide spread environmental degradation has accompanied China’s three decades of rapid development and the country faces significant challenges with regards to air quality, soil quality, drinking water quality and more broadly food quality. That China has been able to attract significant overseas talent despite these challenges is a testament to the attractiveness of its economic growth story. However, with annual GDP growth well off the double digit rates it had previously enjoyed, it is questionable whether expats and returnees will continue to weigh the facts in a similar manner or simply choose to stay in places such as San Diego or San Jose. China’s leaders of course recognise the importance of delivering on the creation of a better environment for its citizens and so environmental protection is becoming a top agenda item for the current leadership. Successfully creating a higher quality of life environment will require more than “simply” halting environmental degradation, though. In order to deliver beautiful cities that are desirable destinations for people to move to, China’s fascination with sky scrapers will need to decline in favour of something authentically Chinese that meets the need of modern large practical spaces. Of course, it will require innovative urban governance initiatives to upgrade existing infrastructure and public transport systems and an eventual transformation of the country’s metropolitan areas into sustainable cities of the future. China has clearly invested so well in infrastructure that it puts much of the US to shame. However, it has not created cities that have the cosmopolitan feel of a New York, London, Paris or Rome. A level of creativity is required beyond the engineering and systems thinking if its cities are to become great cities, which will require the development of a creative and open-society that values diversity in individualism and differences of opinion, as discussed in Policy Focus Area Six: Fostering the Intellectual and Cultural Base below.
  5. Policy Focus Area Five: Reducing Immigration Hurdles. While China has created a number of programs and systems to re-attract and reintegrate mainland Chinese who have studied overseas, it has much further to go in reducing the bureaucracy for the overseas Chinese community to work and operate in China. In this regard, there is an interesting lesson for China from India’s Overseas Citizen (OCI) program. The OCI program allows foreign nationals of Indian origin to register as overseas citizens of the country, and avail of a number of benefits including a life-long entry visa into the country, private sector employment and parity with Indian residents with respect to a number of issues including education, tourism and the pursuit of independent professions (e.g. medicine, law, architecture). The introduction of a similar scheme in China could play an important role in encouraging not only overseas Chinese to settle in China but also to induce its own emigrants to return home to work and settle without needing to relinquish their hard won foreign passports.
  6. Policy Focus Area Six: Fostering the Intellectual and Cultural Base. Great hubs of civilisation have not only attracted and created scientific and technological talent but also poets, philosophers, artists and other free thinkers. Two-thirds of those that leave China to study do not come back. “If you think in terms of a year, plant a seed; if in terms of ten years, plant trees; if in terms of 100 years, teach the people” Confucius Attracting this talent will require the creation of intellectual strength, creative thought and free access to world thought. This implies universities and academies of research and thinking, embracing rather than clamping-down on radical (which includes dissident) thought and the opening up of the media, particularly the internet. This is clearly a multi-decade endeavour but, as the Sign of the Times points out in the “Freedom Advantage”, is an unavoidable step in creating a modern, productive, world class society. The first steps in creating intellectual strength are highly encouraging. China has already attracted Yale, Harvard, NYU and Duke who are building local campuses in encouraging. China has already attracted Yale, Harvard, NYU and Duke who are building local campuses in China with significant local and central government support to provide more opportunities to Chinese students. While these are positive developments, the capacity of these institutions is a rounding error compared to the 400,000 student visas issued by Chinese authorities in 2012 for the US alone. China will need to significantly scale its efforts in higher education to have a tangible impact on the flow of talent.

For the first thirty years of its development, China was an importer of capital and an exporter of talent. Its level of economic development to date ensures that it will become a net exporter of capital in the coming decade. Conventional wisdom says that if China does the above well enough over a sustained period of time, it can conceivably also transition from an exporter of talent into an importer. Clearly, the long-term opportunity goes beyond reducing emigration or attracting overseas Chinese to attracting the brightest and best minds and entrepreneurs regardless of nationality and ethnicity on the basis of offering the most attractive overall opportunities and environment. Doing this will require China to build environments that can compete for talent with some of the world’s greatest and most competitive cities: London and New York for finance, San Francisco for technology, Tokyo, Berlin and Paris for their creative and media industries

Conclusion: Overseas Chinese and the China Dream The challenge for China however is huge. In a recent survey of 1,000 “super-rich” Chinese, 60% of the respondents were either in the process of immigrating or seriously considering it. Over 75% of US EB-5 visa applicants in 2012 (who commit to investing at least US$500k and create ten jobs in the US) were PRC nationals. The corollary to emigration for China’s middle and lower class is unrealistic expectations leading to social and civil issues. In a recent survey of 1,000 “super-rich” Chinese, 60% of the respondents were either in the process of immigrating or seriously considering itCitizens who cannot vote with their feet may vent that frustration in other more harmful ways to social harmony. What is clear is that a society from which the most successful participants are seeking to exit has to make a quantum leap if it is to shift from repelling to attracting talent, if not capital, from overseas. The good news is that President Xi’s administration appears to have clearly recognised the underlying issues and made commitments to address them. As pointed out above, President Xi has called for the fulfilment of the “China Dream”. While returnees and overseas Chinese may have an important role to play in this transformation, having experienced first-hand the benchmarks China will be held up to with regards to measuring the success of their reforms and policies ultimately the government needs to deliver on all of this and more not because its attract overseas talent but because its own citizens will demand these things.


1.    For the purposes of this article we will consider “overseas Chinese” to include all people of Chinese origin currently living outside of mainland China, including Taiwan, Hong Kong and Macau

2.    Mandarin Chinese

3.    Beijing Daily, based on a survey of the 4,243 start-ups in the Beijing Zhongguancun Science Park

4.     “The Grass is Indeed Greener in India and China for Returnee Entrepreneurs”  Vivek Wadhwa et al.; Kauffman Foundation

5.    GSK is the subject of an ongoing major corruption, bribery and fraud investigation in China in which more than 30 people have been subject to house arrest or travel restrictions, including a number of US and UK citizens

6.     Total Inward Foreign Direct Investment Stock 2011, OECD

7.    See the April 2013 Sign of the Times: “China’s Green Potential Future”

8.    See “Grand Design and Society: Creating the Cities of Tomorrow” by Nobuyuki Idei, published in the May 2013 Sign of the Times

9.    See April 2012 Sign of the Times “China and the Freedom Advantage”