China’s capital flight lands on New York doorsteps
March 19, 2015

As crunchy vignettes in U.S.-China relations go, it’s hard to beat the moment in 1979 when President Jimmy Carter pressed Deng Xiaoping to let Chinese people emigrate more freely. “If you want me to release 10 million Chinese to come to the United States,” the paramount leader offered, “I’d be glad to do that.”

Deng was being hyperbolic, but he had a point about what could happen when China shakes loose. Last year over 100 million tourists sallied out of the People’s Republic. But the real story is investment. Rhodium Group, which tracks outbound investment from China, sees $2 trillion of capital flows over the decade ending in 2020. The total stock of Chinese investment in the United States in 2013, for comparison, was $8 billion.

Real estate is at the heart of it. In the two years to March 10, $10.4 billion was invested by Chinese buyers into U.S. commercial property, according to Real Capital Analytics. For the two years before, it was just $1.5 billion. Since 2013 some $6 billion has gone into Manhattan alone, including the Zeitgeist-capturing $2 billion purchase of the Waldorf Astoria hotel by little-known insurer Anbang in February.

These numbers don’t capture the full picture. Chinese investors buying property in the United States commonly route their deals through tax havens like the British Virgin Islands and the Cayman Islands, for anonymity as well as convenience, creating a statistician’s nightmare. While it’s often possible to work out what’s Chinese – crudely, a company with “Dragon,” “Golden” or “Lucky” in the name is often a giveaway – some will slip through the cracks.

A larger gap in the data is residential purchases, which are hard to track, and the numbers aren’t small. Unlike Anbang, most buyers of homes want to stay below the radar. One way to quantify this investment channel is to look at the number of investment visas that have been issued to Chinese citizens under the U.S. EB-5 programme, which gives visas and eventually green cards to applicants prepared to put up at least $500,000 and create 10 jobs.

Some 37,000 Chinese nationals were waiting for EB-5 approval at the end of 2014, according to estimates from Savills Studley. Assume that’s around 15,000 families needing somewhere to live. At the national average price of a new one-family home of $348,300, that’s at least $5.2 billion of investment. A large chunk of that will land on New Yorkers’ doorsteps....

China’s capital flight lands on New York doorsteps

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