China’s Brain Drain Threatens Its Future
By Nathaniel Taplin, July 5, 2023, WSJ
Is China reopening to the world or turning inward again?

Many would argue the latter, but in one important way, the country is still going global: Residents appear to be leaving at a faster clip than they have in years, including a significant number of the wealthy and well-educated the nation needs to keep
modernizing and investing.

Rising numbers of footloose Chinese in 2023 shouldn’t be a surprise. Getting out of the country is easier again now that pandemic controls have been dropped. But the trend of rising emigration actually predates the pandemic—and coincides with the
emergence of several other important economic trends since 2017, including higher youth unemployment, the state’s renewed grip on the financial sector and an apparently structural downtrend in Chinese growth.

Rebounding emigration is also striking in the context of a declining overall birthrate, and suggests that Beijing must do far more to convince talent, both domestic and foreign, that China is a good place to put down roots if it wants to avoid a steeper
growth slowdown in the years ahead.

China, unlike the U.S., has always been a nation of emigrants—its diaspora is among the world’s largest and most influential.

But the scope of emigration has been highly variable over time. For most of the early 2000s around half a million residents, on net, were leaving every year according to United Nations data. But after 2008 that number fell sharply—probably in part due
to China’s strong recovery from the global financial crisis while the U.S. and other major economies struggled. The early 2010s, a period of strong Chinese growth, also coincided with the slow erosion of China’s working-age labor force, creating
opportunities for both ambitious Chinese citizens and foreigners willing to relocate there.

But by the late 2010s, this trend had begun to reverse. Net emigration from China, which had fallen as low as 125,000 in 2012 according to U.N. data, had rebounded to nearly 300,000 by 2018. Although those numbers dropped back again during the pandemic,
the latest U.N. forecast puts net emigration in 2022 at over 300,000 again, after a net drain of about 200,000 in 2021.

Strikingly, the U.N. data actually lines up surprisingly well with data from private sources looking at a more specific demographic—the wealthy. Data collated by South Africa-based New World Wealth and Henley & Partners, a London-based investment
migration consulting firm, show a similar pattern. Net outflows of high net-worth individuals (with more than $1 million in assets) from China were steady at around 9,000 a year for most of the early 2010s. But in the late 2010s, that number started
rocketing up: In 2017, net emigration by the wealthy was over 11,000 individuals, and by 2019 it was more than 15,000.

Henley and New World Wealth don’t have figures for 2020 and 2021, although emigration almost certainly dropped back during those years thanks to China’s initial success at controlling Covid-19. But the consultants estimate 13,500 wealthy individuals
will, on net, leave China this year, following a 10,800 person net drain in 2022.

Of course, net emigration isn’t necessarily a bad thing, and it has often played a critical role in China’s development. Higher numbers of wealthy individuals leaving could indicate faster wealth creation itself—and ambitious emigrants can help
facilitate flows of capital and technology back to China.

But this latest emigration wave is also taking place at a time of weakening growth and an increased populist tilt by Beijing. It is also happening during a fast rise in postsecondary education that is creating a growing supply of credentialed workers.
Those same workers are facing anemic job growth in the service sectors where many of them would find employment. Since 2017, average annual service-sector employment growth has been just 0.4%, according to figures from data provider CEIC. Excluding 2022,
when much of the economy was shut due to Covid-19 lockdowns, only moves that average up to 1.4%. In the five years through 2017 on the other hand, service jobs grew an average of 4.4% a year.

Rising net emigration also mirrors much smaller influxes of foreign talent in recent years—another trend that threatens to slow China’s climb up the technological ladder. Foreign residents of Shanghai and Beijing numbered just 163,954 and 62,812 in
2020, according to official data, down 21% and 42%, respectively, since 2010. The pandemic is clearly a major factor. But given the well-publicized rising tensions between China and the West, slowing growth and the rising risks of detention and
investigation for what used to be considered routine business by foreigners in China, a portion of that decrease seems very likely to persist.

For much of the new millennium, China has been a place where the ambitious, hardworking and lucky could often get ahead. But in today’s China—more focused on security and control, less on growth—it is no longer clear how true that really is.

Some people, at least, seem to be voting with their feet.

https://www.wsj.com/articles/chinas-brain-drain-threatens-its-future-dbe38096

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