Insights into The War for China’s Wallet | Marketing and Networking University

Insights into The War for China’s Wallet

Insight into Chinese Business

Looking at Chinese-led initiatives such as One Belt One Road (OBOR) as well as the Asian Infrastructure Investment Bank (AIIB) combine this with uncertainty due to United States shifts in policy and apparent commitments over the past decade, the stakes are very high for companies looking to create profit from the world’s newest superpower.

Post-financial crisis, China has emerged as the possibly the largest or at least the second largest trading partner for most countries around the world. It certainly has become the 2nd largest market for many Fortune 500 companies like Starbucks, Nike, and Apple and drives growth for much of Hollywood and commodity type products. Yet all of these profits come at a price for these countries and companies alike—they must adhere tight to the political goals of Beijing or else face economic punishment by China or outright banishment. Utilizing primary research from interviewing with hundreds of government officials and business executives, The War for China’s Wallet will help companies understand the ins and outs to profit from China’s outbound economic plans as well as a continually shifting consumer base that is becoming increasingly nationalistic. These countries and companies that get it right will benefit from China’s wallet but those that do not will lose out -big time, on the world’s largest growth engine for the next two decades.  {Discount for “The War for China’s Wallet” is at the bottom of the page.}

 

 

 

Click Here to Order – The War for China’s Wallet

Shaun Rein-chinas wallet

 

 

 

The War for China’s Wallet: Profiting from the New World Order

 

 

Chapter 7 – Sample

Shaun Rein – The War for China’s Wallet

The New Global Chinatowns: From Ramshackle to Luxurious Enclaves

California, February 2015

“Welcome to Arcadia,” Jimmy Zhang beamed as he opened up the door to his Mercedes S600. Behind him, the San Gabriel Mountains towered regally. We had just arrived in Los Angeles the night before. Traveling through the United States during the Chinese New Year holidays, visiting with family and friends, had become an annual tradition. We had come to America for the past several years to scout out potential real estate investments. A few years prior, we had visited Maui, another year Boston.

While none of us had yet bought anything, we were coming close in part, with the hope that our kids would eventually attend boarding schools like St. Paul’s or Exeter and then Ivy League universities, many of us were looking to buy a spot that would enable easy visits to our offspring. Some of us were considering retirement abroad and wanted to prepare for that eventuality. Others of us simply sought to diversify assets outside of China using money already parked abroad— capital established while having worked overseas after graduate studies in the U.S. and before returning to China, or gained from investments that went public outside of China—in Hong Kong or the United States. With looming concerns that the RMB would soon be devalued, most of us were in search of legal means to diversify.

At the recommendation of another Beijing-based billionaire friend, we were all to visit Arcadia—commonly nicknamed “The Chinese Beverly Hills.” Upon his glowing reviews, we determined to scout out Arcadia’s homes before embarking on a several-week hiking trip through Zion National Park and the Grand Canyon to soak up their clean, fresh air. Telling us to skip a hotel, our friend insisted on hosting us at his sparkling multi-million-dollar mansion, free of charge. While he himself would not be there, he had arranged for his personal real estate agent to let us into the house and show us around the area. Having accepted his offer—or really, his order—I now looked into the face of a grinning Jimmy Zhang who came by early to show us around Arcadia’s opulent neighborhoods.

Originally from Sichuan province, Jimmy had arrived in America two and a half decades before. At a time when China’s jobs paid meager salaries and offered little security, twenty-somethings like Jimmy hoped for better work prospects in the U.S. But Jimmy’s first decades in the States were tough. Speaking insufficient

English, he was relegated to jobs cleaning dishes and waiting tables at cheap, grimy Chinese restaurants selling General Tso’s Chicken and Moo Goo Gai Pan.

He had missed out on benefitting from the first wave of immigration from Hong Kong to the U.S. in the 1990s, just before China’s takeover of the island in 1997. Lacking the linguistic ability and wherewithal to build trust with their Cantonese-speaking counterparts, he and other mainlanders were often deemed poor, country bumpkins by the Hong Kongese.

But Jimmy’s bitter, itinerant life all began to change around 2008 when new money Chinese mainlanders began investing the riches they’d gained during China’s real estate gold rush from 2003 to 2008. Bringing their money to the West, mainlanders who had cashed in on Chinese real estate began scooping up homes in California, almost like children grabbing handfuls of M&Ms—the bigger the home, the better. A prime target, Arcadia became the centerpiece for mainlanders looking to buy 8,000-square-foot or larger homes. Prices soared to the point at which $5 to $10 million USD mansions were fast becoming commonplace; heads only turned when one hit the $15 to $20 million USD range. In 2013 alone, over 90 homes in Arcadia sold for more than $2.5 million USD.i

In the meantime, Arcadia’s racial make-up was quickly transforming, soon to become a mini China. As we drove along the streets of Arcadia, strip malls displayed more Chinese language signs than English ones, touting Chinese food, acupuncture, and other health care products largely foreign to American consumers.

A predominantly white city in the 1930s—much like other upper middle class cities throughout the country—Arcadia, Compton and other municipalities in the Los Angeles area were examples of the many cities where depression New Deal policies including one dubbed “redlining”, which effectively mapped out areas where non-whites might gain mortgage insurance, served as effective tools to segregate communities. In addition, existing homeowners signed pledges agreeing to cooperate in enforcing the segregated sale of their home. Together, these and other factors caused bitter and sometimes violent disputes. This left the growing number of, African-Americans in particular, Chinese and Latinos to reside in poor conditions, often far from the city center. Many forget how widespread U.S. regulations and homeowner covenants were until the 1960s, strictly limiting non-whites and Jews from moving into certain areas. African diplomats, for instance, confronted immense frustration when searching for suitable homes within reasonable commuting distances of their nations’ embassies—even in Washington D.C. restrictions were widespread. Only under the Civil Rights Act of 1964 and Fair Housing Act of 1968, enacted under President Lyndon B. Johnson, were many of America’s race-based regulations fully outlawed.

As Americans began internalizing the values promoted by the Civil Rights Act, shifts in racial make-up of residential areas were a common phenomenon in the mid-to-late 20th century, particularly in cities like Arcadia. Soon after 1965, Arcadia received a wave of Chinese immigrants from Hong Kong, but numbers remained small for the next two decades, amplified slightly by Taiwanese newcomers. By 1980, only 85,000 Hong Kong-born immigrants lived on U.S. soil. Not until the 1990s did Hong Kongese immigrate en masse, buying out large quantities of land in California and Vancouver. Fearing Hong Kong’s handover to mainland control in 1997, numerous Hong Kong residents had rushed to secure safeguards abroad. By the dawn of the millennium, Arcadia residents began to embrace Asian money, especially that of affluent Chinese—it had become an economic savior.ii

Taking advantage of the influx, Jimmy had opened up his own small real estate firm, serving only Mandarin-speaking clients. This was a move of great prescience. By 2017, the number jumped 38.63 percent from 2000. Hitting $80,147 USD in 2017, Arcadia’s median household income was accompanied by an outstanding three percent unemployment rate.22

Quite literally, mainland Chinese money had saved Arcadia’s local economy from the dire straits faced by so much of California and the country at large, debilitated by the Great Recession of 2008. Unlike the rest of America, whose empty strip malls and deserted downtowns gaped with shuttered restaurants and abandoned storefronts, Arcadia boomed.

Flooding the city, manicure shops, luxury auto dealerships from Mercedes to BMW, massage parlors, Chinese grocery stores, and restaurants eagerly catered to the new money flowing from the East. Along with Chinese language signs sprouting up throughout the city came an initial wave of service firms, like Jimmy’s real estate company, as well as designers and architectural firms specializing in Chinese home-buying tastes.

Formerly alien concepts like feng shui23, south-facing homes, or in-law apartments within mansions joined the regular lexicon of real estate agents, as Chinese homebuyers’ preferences differed markedly from those of typical Americans. Architectural design firms—such as Sanyao International, started by Robert Tong, and PDS Studio—thrived from new home designs that fit mainland Chinese tastes. Houses with high ceilings, circular driveways, and kitchens set up

||

22 http://www.areavibes.com/arcadia-ca/employment/

23 Feng Shui is a philosophical system with Taoist roots where people and designs need to be harmonized with the surrounding environment, especially looking at wind and water flows

properly for woks—a keystone of Chinese cooking, used in lieu of western pots and pans—enjoyed wide acclaim among mainland buyers. Few of these new homes were decked out with fireplaces or big, manicured lawns, the Chinese had no desire for such accoutrements. Additionally, prime property spots for Chinese stood in the center of neighborhood blocks as opposed to the corners typically preferred by more traditional American buyers.iii

Arcadia rapidly and uniquely developed an understanding of how these new mainland consumers diverged both from earlier waves of Chinese immigrants— mainlanders, Hong Kongese, Taiwanese—and from most Anglo Americans. Armed with a native’s perspective and having taken advantage of the trend, Jimmy did quite well for himself during Arcadia’s rise, now driving his S Class Mercedes and hobnobbing with China’s wealthiest elite as they ventured through California.

As we spent the next several days in Los Angeles, touring Arcadia and neighboring cities, it became obvious the speed and scale at which mainland Chinese immigrants and their money are changing entire city landscapes. Disrupting supply chains, inbound Chinese continue to create tremendous opportunities for local businesses and industries. Tall, luxury apartment buildings have rapidly replaced downtrodden single-story homes, gentrifying vast expanses. Drawn by institutions of higher education, many Chinese homes have proliferated within commuting distance of UCLA and other universities now populated by record numbers of Chinese students. Armed with 24-hour security, these compounds are similar to those back in China, walling off residents from strip clubs and lower-end establishments nearby.

In mimicry of mainland style, entire strip malls opened to specifically accommodate Chinese consumers, offering products and services similar to those in Beijing and Shanghai—herbal medicine, acupuncture treatments, skin-whitening products, umbrellas to block sun rather than rain, after-school tutoring, and Chinese clinical care. Local auto dealers like BMW swiftly learned that Chinese drivers favored models less popular among other Americans. Formerly overlooked by American customers, models like the X6 saw a remarkable uptick in sales, hugely popular in China.

Consumerism and Cold Partners

Just as China’s government wallet benefits the economic prospects of countries that fall into its Hot and Warm Partner categories, and conversely hurts economies of errant Warm and Cold Partners (as we have seen in Chapters 1 through 3), the wallets of Chinese consumers are starting to show a similar impact on

international businesses. But the orientation of Chinese consumer wallets may differ from that of their regime. Deviating somewhat from a commitment to China’s Warm and Hot Partner countries, Chinese consumers often power sales of brands and real estate in Cold Partner countries. Even if politically distrusted by the Chinese government and consumers themselves, Cold Partner countries still stand superior in attracting Chinese wallets with the promoted lifestyle and quality control of their brands.

In light of this divergence between China’s state wallet and those of its consumers, however, understanding the categorization of Hot, Warm, and Cold partners remains vital for companies in the context of consumer spending. Chinese consumers may be free to invest where they like, but China’s political hand still holds its grip. Brands and local governments seeking to attract Chinese foreign investment therefore need to keep abreast of their country’s partner categorization. Doing so will not only enable them to burnish brands accordingly, but will also guide them in counteracting potential tension at the nation-to-nation level. For example, while the U.S. may be politically categorized as a Cold Partner country, Chinese consumers trust American brands for their quality control and, more importantly, covet the various lifestyles afforded when living in the United States. Brands needs to be aware of their country’s categorization from a political standpoint so they can counteract negative positioning with strong brand positioning and advertising campaigns.

In fact, one of the best ways Cold Partner countries can benefit from Chinese wealth creation is via immigration, facilitating acclimation and opportunities for Chinese newcomers. America’s EB-5 program, for instance, has successfully attracted well-educated and wealthy immigrants since its establishment in 1990, thereby stimulating economies in poorer regions by granting immigration papers to those who invest enough in these areas to create job growth. Through the EB-5 program, when investors invest $500,000 USD into a rural area or area with high unemployment, investors are granted conditional American permanent resident status, or as green card holders, that allows them to immigrate to America for two years. If the investments create 10 new jobs with a reasonable time frame, they can extend then the permanent residence status to become permanent.

While some have indeed abused the program—many argue, such as Brooklyn journalist Norman Oder, that the current $500,000 USD threshold is too low or that real estate developers find loopholes to use the money for skyscrapers rather than entrepreneurial ventures—the program overall has brought in wealthy Chinese immigrants whose contributions are invaluable to American society.iv Similar programs in Australia and other nations have seen comparable returns.

In terms of Chinese immigrants’ regional preferences, however, the past decade has primarily witnessed an influx of Chinese to English-speaking nations formerly part of the British Empire, like the United States, Canada, Australia, and New Zealand. As explained in previous chapters, Chinese gravitate towards historically racially white nations, meaning very few will immigrate to Pakistan, South Africa, or Myanmar, where most citizens are darker skinned. While some of this stems from racial intolerance of dark-skinned ethnicities—a phenomenon still prevalent in Chinese society—much of Chinese immigrants’ preference for English-speaking countries are rooted in their belief that English-based educational institutions are the best in the world. Keen on securing a brighter future for their progeny, Chinese parents naturally elect to immigrate to areas where they believe their offspring will be afforded a better education.

The Four Waves of Chinese Immigration into the U.S.

In light of the trends delineated above, this chapter and the next will focus predominantly on the evolving Chinese consumer as they spend and live outside China. As China’s nationals increasingly spend time abroad, whether as tourists or immigrants, their domestic and international spending habits will also continue to shift. Comprehending the ramifications of these shifts will allow companies and states to capitalize accordingly. To start, this chapter will look at the arena of Chinese immigration, delving into the ways in which companies can adapt to the demands of Chinese consumers abroad—both in terms of their underlying life aspirations and their more tangible desires.

In order to profit from the fundamental life ambitions of the newest wave of Chinese immigrants, companies must first distinguish between China’s most recent newcomers and previous immigrant waves of the Chinese diaspora. There are immense divides between those who moved to the U.S. to work during the California Gold Rush (1848–1855) and those fleeing Communist control of the mainland from 1949 to 1965, for example. Spending habits, lifestyle preferences, and long-term aspirations also differ accordingly. To inform a prudent business approach, let’s therefore gain some historical context on these divides.

***

The first wave of Chinese immigrants in the mid-1800s tended to be dirt-poor Chinese from Guangdong and Fujian provinces, driven to Southeast Asia or the United States by prospects of starvation in their hometowns. A part of this wave, my ancestors left behind their life in Guangdong province and moved to

California. Like many Chinese immigrants of the time, they worked in low-end tin or gold mines, or performed other types of menial labor for minimal pay. It is this segment of the Chinese diaspora that gave rise to the term ‘coolie,’ which some argue derives from the Chinese word kuli, or bitter hard. Often never learning more than a smattering of English, these immigrants were responsible for seeding the cramped, smelly Chinatowns that grew through large metropolitan areas.

Restricted from living elsewhere by municipal authorities, most immigrants of this wave of the diaspora never had the opportunity to integrate into American society, discriminated against by both social and political forces. Prompted by fears that Chinese urban pockets were responsible for declining wages and economic ills despite their tiny population, the Chinese Exclusion Act of 1882 effectively blocked Chinese immigration to the U.S.. Even Chinese men who had already immigrated could no longer bring their wives to the country, leaving many of America’s Chinatowns heavily male-oriented. As a result, many men returned to China to marry and have children, but often came back to the U.S. to work and repatriate their limited earnings. In the meantime, a large proportion of Chinese women who made it to the U.S. became prostitutes as their services were in such high demand. Having relegated Chinese immigrant pockets to more seedy areas in the hopes that they would share less contact with white middle class workers, U.S. metropolitan authorities in large part spurred the development of China-town’s red light districts, even if unwittingly. Political fears of Chinatown’s opium dens, and the spread of leprosy caused authorities to move these neighborhoods out of the city center. The authorities thus unintentionally assisted the growth of seedy, underground behavior.

Facing both institutional and day-to-day racial discrimination, these Chinese immigrants rarely learned English at a native, fluent level. Even though many spent most of their lives in the U.S., Chinese like my ancestors were simply kept too isolated to assimilate into American society. Lacking English skills, most remained relatively poor and uneducated for generations. After mining and railroad work dried up, early wave Chinese immigrants often operated laundromats or Chinese restaurants. Descending from humble beginnings and surviving by the hardest labor, this group therefore gave rise to the stereotype of Chinese as cheap and frugal—coating furniture in plastic vinyl sheets to keep them in better condition or carefully peeling off onion and garlic skin at supermarkets that sold them by weight.v

About half a century later, a second wave of the Chinese diaspora arrived in the U.S. following the repeal of America’s Chinese Exclusion Act by the Magnuson Act of December 17, 1943. These new immigrants principally consisted of those fleeing China after Mao Zedong’s Communists seized control of the

mainland in 1949, rising victorious over Chiang Kai Shek’s Nationalists. In a mass exodus, many had first moved to Taiwan after Mao’s rise to power before immigrating to the United States. Yet unlike the first wave that fled starvation, this new wave of Chinese immigrants in the 1960s primarily consisted of China’s landed gentry. Having supported Chiang Kai Shek’s Nationalist Party, many feared retribution after the Communist takeover. Affluent and well educated, Chinese in this group brought with them both savings and prestige. Many even had preexisting ties in the United States—remnants of their military and academic cooperation with American counterparts in the run-up to World War II. While still confronted by institutional racism, this later wave of immigrants enjoyed far greater opportunities for economic and educational advancement.

As a result, descendants of the 1949–1965 immigrant group have tended to outperform the early wave of cohorts in the U.S., both academically and economically. Concentrated in wealthier suburbs, mid-20th century Chinese immigrants have largely avoided the more derelict Chinatowns, thereby integrating more smoothly into American society. Sometimes considered Taiwanese, many members of the second wave have even fostered this misperception to differentiate themselves from “Communist” mainlanders. Originally, however, this group of immigrants harkens back to mainland China, only moving to Taiwan briefly in the aftermath of China’s civil war, long after Taiwan’s first Chinese settlers in the 17th century.

Coming from upper class backgrounds, immigrants in the second wave often assumed positions in large institutions, yet rarely made it to senior executive suites. While some topped out at senior engineering levels, many also entered the medical or legal fields, prized for their high status and comfortable salaries which were associated with prestige in both the immigrant and Anglo communities.

Yet another five decades later, the third wave of Chinese immigrating to America arrived in the years before Britain’s handover of Hong Kong to mainland control in 1997. Worried that their assets would be seized or devalued by the Communist takeover, a great number of Hong Kong’s wealthiest residents speedily moved to the U.S. or Canada, while many others simply obtained foreign passports and remained in Hong Kong. As fears grew greater in the former British colony, even middle class Hong Kongese decided to foot the bill for foreign passports, just in case. Following the lead of Hong Kong’s uber-rich, many middle class citizens thus took on dual citizenship while remaining in Hong Kong. Approaching the handover with caution, they now had a get-out-of-Hong Kong card if needed. The husband and children of current Hong Kong Chief Executive Carrie Lam, for example, have taken on British nationality. Others moved outright to the U.S. or Canada.

Similar to those who fled China in the 1950s, the majority of Chinese immigrants in this third wave integrated fairly well into American society. Gaining admittance to America’s most selective universities, such as Harvard and Princeton, many third-wavers found employment in large U.S. corporations, became doctors, or rubbed shoulders with white-collar elites working lucrative jobs on Wall Street. A significant percentage also continued operating family businesses, either running factories in southern China or collaborating on deals with mainland and Hong Kong professionals back home. Having leveraged well their linguistic capabilities, several third-wave Chinese became middlemen for Western companies, serving as a bridge between growing opportunities in China and businesses in America.

It is this wave, ironically, who actually benefitted most from China’s move to become the factory of the world—most of the factories making mobile phone components or t-shirts were owned not by mainland Chinese, but by Hong Kongese who had taken foreign passports. Others, like Ronnie Chan, who is the Chairman of the Hang Lung Group and member since 1998 of the Committee of 100 (an organization who membership is open only to Americans with Chinese descent), made money in China through real estate.

Finally, the fourth and largest wave of Chinese immigrants—spanning the late 1990s to the present—has been chiefly comprised of mainland Chinese. Yet even within this most recent group of mainland immigrants, there exist clear divides between those arriving prior to 2005 and those immigrating afterward. The first group, which I will call Phase A, constituted mainlanders arriving in the U.S. before 2005, primarily to study abroad and remain in the country for post-graduate employment. Phase B, on the other hand, consisted of mainlanders who made their fortunes in China and brought their wealth to the U.S. after 2005. Appreciating the differences between Phase A and Phase B Chinese immigrants of this latest fourth wave is essential for brands trying to strike the right marketing and sales strategies. In many ways, Phase A and Phase B fourth wave Chinese are as different from one another as are second and third wave immigrants. Having generated wealth through distinct channels and in different environments, Phase A and Phase B differ significantly in their outlook on life and so prioritize different categories when spending.

Before 2005, the goal of most Phase A Chinese immigrants was to study in U.S. academic institutions and then flourish through conventional professional channels upon graduation. High salaries and job opportunities were scarce in China at the time, and Chinese mainlanders had yet to make their fortunes by speculating in real estate or the ever-volatile A-share stock market in Shanghai or the ChiNext (NASDAQ-style) board at the Shenzhen Stock Exchange.

To Phase A, mainland immigrants in the late 1990s and early 2000s, the ideal life was a comfortable one—a job at a Fortune 500 company like Johnson & Johnson, or perhaps a quantitative job on Wall Street; a medium-sized suburban home in New Jersey or Boston; and a Lexus or minivan parked in the driveway. Few Chinese in those days could have predicted the staggering wealth creation that occurred in China only a decade later. Content with the security of an upper middle class American lifestyle, they therefore likened themselves to descendants of second and third wave Chinese immigrants. Prior to China’s imminent real estate boom, only the very top of China’s richest one percent could have a standalone home, cushioned by a yard and multiple cars.

Mainlanders who immigrated to America in Phase A also tended to be the very best China had to offer academically. Graduating from China’s most renowned and competitive undergraduate programs—at Peking, Renmin, and Tsinghua universities—these immigrants represented China’s top talent and longed to pursue their graduate studies in the West. Relying on scholarships as their ticket to America, many of China’s academically gifted bypassed the Har-vards and Stanfords of the world—which offered limited financial support—in favor of any graduate program that granted them money. Zhang Lei, billionaire founder of hedge fund Hillhouse Capital Management, was one of many who faced this predicament. During a ski trip together while we were still graduate students, he revealed to me that he had chosen Yale over Wharton—where he had also gained admittance—largely out of necessity. Only Yale had bestowed him a generous scholarship. Grateful to the university for having granted him the opportunity, Zhang Lei later donated a generous $8,888,888 USD, since 8 is a lucky number in China, to Yale after his rise to wealth.

Billionaire Robin Li (Li Yanhong), founder of Internet search giant Baidu, also falls into this category. Having graduated from Peking University in 1990, Robin Li then attended University at Buffalo, The State University of New York, where he received a master’s degree in 1994. Upon his completion of graduate school, he realized the Chinese dream by staying in the U.S., where he worked for IDD Information Services, a New Jersey division of Dow Jones. Following a similar trajectory was Peggy Yu (Yu Yu), now co-founder of Dangdang, China’s largest online book seller. Upon graduation from Beijing Foreign Studies University, Peggy Yu subsequently pursued an MBA at New York University where she graduated in 1992. After working a stint on Wall Street, she then moved back to China before the turn of the century and opened Dangdang in 1999.

But Zhang, Li, and Yu were exceptions to the majority of Phase A immigrants. Most mainland Chinese who stayed in the U.S. tended to get solid upper middle class jobs but never reached true wealth status while working in American

companies. Feeling they had hit America’s glass ceiling after graduate school, the most entrepreneurial members of this generation returned to China in the late 1990s and early 2000s to forge greater wealth. Among this more limited cohort, Robin Li launched Baidu in 2000; Zhang Lei founded Hillhouse after several years of working for Yale’s endowment fund and a fund in Washington D.C.; and Peggy Yu established a fortune through Dangdang.

As a result of the above trends, those Phase A immigrants who remained in America to craft their careers typically like their personal and professional lives, but feel they missed out on China’s economic growth. Having interviewed over a hundred Phase A Chinese-Americans in the past decade, I have seen this view echoed repeatedly. As one Chinese chemical company executive told me, “The U.S. is great, but I feel I never realized my career potential here. Perhaps I should have moved back to China. But I am too old now.” Having moved to Texas for his studies in the mid-1990s, he had worked his way up the corporate ladder for twenty years but hadn’t made it big like Zhang Lei or Peggy Yu.

While this batch of Phase A mainland Chinese immigrants have mostly assimilated into Anglo American culture while retaining their Chinese identities, precious few have earned the purchasing power needed to shape entire industries. In most cases, they have put their dreams into their children. Similar to second wave mainland and Taiwanese immigrants of the 1960s, Phase A Chinese parents have largely given rise to the Tiger Mom phenomenon, investing time and ambition in their pre-adolescent and teenage children. Having missed out on China’s economic boom despite their prior status as China’s best and brightest, these parents pour hours of energy into their children, focusing on piano, math, and other enrichment lessons. One day, their children may achieve their own foregone dreams.

Chinese Phase B immigrants, on the other hand, pose a vastly different ball-game for international businesses. With enormously higher spending power, post-2008 Chinese immigrants bring critically distinct preferences and perspectives to Western markets. If companies are to profit, they would be wise to distinguish between the wallets of Phase A and Phase B consumers. Primarily younger Chinese, Phase B immigrants tend to enter U.S. universities at the undergraduate level or increasingly at the high school level paying for the full ride as opposed to the graduate schools that only Phase A scholarship earners had the privilege to attend.

Backed by the wealth of their parents, many Phase B newcomers are the offspring of Chinese mainlanders who earned their fortunes in China after the turn of the millennium. Now investing their abundant wealth in American real estate or private schooling, this latter category of mainland Phase B immigrants is far

wealthier than any of the earlier waves of mainland, Taiwanese, and Hong Kongese immigrants. During China’s real estate boom of 2003–2008, few restrictions limited the number of homes you could buy, and deposits could be as low as 0 to 10 percent depending upon city and time. Those who capitalized on the minimal regulations reaped lavish profits.

Now moving to American cities like Arcadia, Phase B Chinese immigrants seek better lifestyles for their families. These parents are therefore much less likely to push their children academically; there is little urgency for their offspring to struggle in pursuit of professional success. On the contrary, many Phase B Chinese parents tend to “spoil” their children, giving rise to modern-day tuhao—a Chinese term often used derogatorily to refer to second generation inheritors of wealth, viewed as lazy and entitled by their Chinese contemporaries. Seen by many poorer and middle class Chinese as never having to work hard during their careers, most of these tuhao immigrate to America as their parents foot the bill for luxury condominiums and shiny BMWs.

It is certainly critical for brands to distinguish between the preferences and psychology of Chinese immigrants across all four waves. With a keen appreciation of each group’s motivations, enterprises will succeed in selling to the Chinese diaspora at large. Most importantly, however, brands will gain most from catering effectively to fourth wave Phase B immigrants—a concentration of spending power rivaled by precious few.

Flight of Wealth

As waves of Chinese immigrants continue to flow and shift, companies must invest in foresight and plan accordingly. To aid in our predictions, we must analyze two fundamental questions regarding the current wave of mainland Chinese immigration to the U.S. and its Anglo neighbors. First, to what extent will the trend continue, and will these Chinese immigrants remain a force capable of changing the landscapes of entire cities and even countries? Second, why are post-2005 Phase B Chinese immigrants moving abroad, predominantly to Australia, America, and Canada, when China’s job market is now so good? Despite China’s weakening economy in 2016 and 2017, the unemployment rate decreased from 4.02 percent in Q4 of 2016 to 3.97 percent in Q1 of 2017.vi

Based on interviews conducted by my firm (CMR) with middle class and wealthy Chinese, it is demonstrably clear that nationals of all socio-economic backgrounds continue to pursue lives abroad. Statistics overwhelmingly support this conclusion. In 2011 alone, over 150,000 Chinese obtained permanent residence outside of China. By 2012, Chinese outnumbered legal Latino immigrants

in the United States, and rising figures showed no signs of slowing. As long as Chinese are able to get their money out of the country—which has become increasingly difficult since China’s government began efforts in early 2016 to stave off the fleeing funds in excess of $100 billion USD monthly—Chinese will keep emigrating abroad. In CMR’s interviews with over 200 Chinese worth $10 million USD or more, over 80 percent told my firm that they had already emigrated abroad or strongly considered doing so. Those in the latter category had made inquiries to law or consulting firms in order to start the process. Among the 500 middle class Chinese consumers we interviewed in 2016 and 2017, the numbers dropped slightly to about 50 percent. But even this figure is shockingly high when considering the economic risks posed by significant brain drain and capital outflow. With such high percentages of wealthy and middle class Chinese wanting to emigrate abroad, deep anxieties abound. How will China retain enough talent and capital to continue sustaining economic growth? Reflecting the panic of Chinese economists and political officials at large, I personally fear for the nation’s economy as capital flight and brain drain threaten growth on a colossal scale.vii

If China’s job market remains so strong, why are so many Chinese determining to move abroad? In speculating on this second question, many western media outlets like CNN have wrongly argued that a large portion of flight results from Chinese opposition to the Communist-led political system. These same media outlets do not draw the same conclusion about political protest towards democracy by the Indians or Taiwanese moving to America. Should we assume Indians are moving to Silicon Valley because they are protesting against democracy in India or is it more likely they move to America for the quality of life? In reality, however, China’s capital flight and high immigration figures have more to do with the pursuit of profits and a calmer, cheaper lifestyle. Few have elected to move abroad in the name of political protest or government opposition.viii

Based on my firm’s interviews, in fact, it is patently not true that Chinese are protesting the government in their move to America and other Anglo nations. With the exception of a handful of dissidents that receive outsized prominence in the U.S.—take Chen Guangcheng, nicknamed, the “barefoot lawyer,” for in-stance—few respondents told us they were leaving out of dislike for the government. Contrary to common American misperception that Chinese nationals are brainwashed by government censorship and propaganda, many of our interviewees were willing to criticize, at times heavily, certain policies of China’s political system—much as Americans disparage their own. In fact, Chinese know quite well the strengths and faults of their nation’s current political system, often taking both in stride. None of CMR’s interviewees, however, listed dislike of the political system among their top 10 reasons for emigrating abroad. Quite the

contrary, most generally believed that the central government, for all its limitations, was leading China in the right direction.

Fourth wave Phase B Chinese immigrating in the post-2008 era were typically the political system’s greatest beneficiaries. Predominantly insiders—or at least connected to insiders—many of this latest wave were able to buy homes before everyone else, gaining lucrative government concessions in real estate and other ventures.

After casting aside blame of political opposition, a deeper look is required to unearth the real reasons underpinning Chinese immigration to predominantly white nations. Many wealthier Chinese immigrating before 2012 explained that their plans to immigrate and buy houses abroad were largely forged in case they chose to move later on. Typically targeting English-speaking cities such as Sydney and Vancouver, most sought clean air quality, trustworthy medical facilities, and schools of academic excellence. For families focusing chiefly on schools, wives usually moved abroad with their children while husbands either remained in China or commuted back and forth.

Aside from facilitating future prospects abroad, taking on a foreign passport was generally intended to ease everyday lifestyle patterns. Particularly for our wealthiest interviewees, Chinese passports were a thorn in the side of anyone seeking uninhibited, visa-free travel. In fact, a great percentage of our richer interviewees Chinese kept multiple passports in contravention of Chinese law. With a legitimate Chinese passport, they could travel freely within China and, most importantly, buy property. Traveling around the world, however, was much more convenient with one of their fraudulently held foreign documents. In sum, pre-2012 Phase B Chinese immigrants wanted to plant one foot in each camp—retain-ing their Chinese citizenship and its many accompanying benefits, while keeping doors open abroad.

For post-2012 Chinese, however, two critical shifts occurred. First, as fears of President Xi’s corruption crackdown emerged, Chinese citizens circumventing the law began planting both feet abroad. Instead of remaining in China for domestic business purposes while contemplating new horizons, many Chinese now committed wholeheartedly to new lives abroad. Having made clear his resolute position early on, President Xi Jinping followed through with pervasive corruption investigations, appointing Wang Qishan to be in charge of the Central Commission for Discipline Inspection. With no children of his own, Wang Qishan could cut to the bone of China’s insidious corruption strains without fear of longterm repercussions for his own kin.

A generally accepted phenomenon of the past, many Chinese businessmen made their fortunes in the 1990s and early 2000s via corrupt practices. Virtually

everyone is exposed in some way. In a system that compelled people to bribery, this wealthy cohort saw corruption more as a gray area, a recognized necessity rather than the egregious practice it is now deemed to be—after all, almost no one’s hands were clean. By 2016, 120 high-ranking officials were arrested, and 100,000 people indicted for corruption. The tables had turned.

Moving assets abroad to prevent possible arrest, China’s post-2012 immigrating businessmen sought to flee the iron fist of Wang Qishan’s investigations. Yet their primary means of getting money overseas were no cleaner than their original fortune-making tactics. Many faked the value of invoices; took money out of ATMs; bought expensive products (such as jewelry) in Macau and then returned them for cash minus a commission from the retailer; faked invoices altogether; set up illegal companies overseas; used recently emergent multi-billion dollar underground banks; and asked friends to transfer $50,000 USD worth of currency in their steads. Facing high stakes, China’s wealthiest businessmen rushed to secure getaways, and immigration was often their best shot.

The second post-2012 shift prompting wealthy Chinese to move abroad drew links to China’s weakening growth rate. Facing a combination of poor air quality, cramped homes and a slowing economy, many Chinese could no longer make the sweeping fortunes of China’s bygone go-go days. Furthermore, China’s urban centers are often more stressful for everyday residents than those of tranquil European cities—even for China’s wealthiest elite. Access to good health care is tough, and simple conveniences like parking spots are often magnified frustrations.

Tired of the hassle, many Chinese have preferred to move abroad where kids and grandkids can live in manicured mansions, driving Porsches and BMWs, at a fraction of China’s cost of living. Having already accrued their piles of gold, Phase B immigrants deemed unlikely any further growth at similar scales. Aside from a maturing economy that had reached its peak, President Xi and Wang’s corruption crackdowns were only further stressors atop China’s pollution and frenzied urban lifestyles.

Implemented in 2012, real estate restrictions in most major cities also made it exceedingly difficult to buy homes. Non-Shanghai hukou holders, for example, now had to prove that they were married and had both worked and paid taxes in the city for five years prior to buying a house. Other cities, like Beijing, limited the number of homes one could buy. As a result, Chinese seeking real estate— typically a favorite asset class given its tangible nature—had to buy homes either offshore or in undesirable Chinese cities that had fewer or no limits.

Whether as a result of Xi’s crackdowns or an already milked economy, the fourth wave Phase B Chinese have shown destabilizing rates of immigration, not only engendering domestic anxieties but also concerns abroad.

The Impact of Wealthy Immigrants

For many countries receiving fourth wave Chinese, mass immigration from the Eastern superpower is a double-edged sword. Given their own wealthy native populations, the U.S. and its larger cities, like Los Angeles and New York City, are better equipped to absorb large numbers of Chinese, particularly as affordable housing exists in other parts of America. Other nations, however, may experience greater difficulties when attempting to accommodate China’s Phase B influx. Australia and Canada, for example, have witnessed disruptive changes within their real estate markets as Chinese buyers run up housing prices to the point at which locals can no longer afford to live in certain neighborhoods. Lacking proper regulatory frameworks, these countries have suffered in part because Chinese homebuyers do not always pay local income tax, unlike in America.

In October 2016, I was invited to keynote a series of events for CPA Australia throughout the country. While in Sydney, I visited my friend Elizabeth at her home. I had heard that spiking housing prices were a cause of tension in the city as more affluent Chinese immigrants continued to drive out local buyers. Many Aussies had started commuting one to two hours from their workplaces in a desperate bid to find affordable housing. I asked Elizabeth about the situation.

“Yes, rising housing prices are becoming a real issue. It’s been tough for local Australians to buy homes and we’ve seen a lot of tension as a result.” Similar pressure has become commonplace wherever wealthy Chinese immigrate, from Sydney to Vancouver to Seattle. A former colleague from my Internet technology days, now living in Sydney, had even told me that she’d moved an hour away from work as “everything was being bought up by the Chinese.” Prices were simply no longer affordable. Even then, she admitted she felt “lucky.” Working a senior position, she enjoyed better prospects than even more inconvenienced colleagues, many commuting four hours each day just to have a yard and a parking spot.

Elizabeth continued by emphasizing an even greater cause of friction—cul-ture change. “Another phenomenon causing tension is that Chinese are now outnumbering locals.” She then continued to explain how a friend had switched her kids into a different school when she found that twenty-two of her son’s twenty-five kindergarten peers were originally from China. “My friend,” Elizabeth reasoned, “loves the Chinese people and welcomes them to Australia. But seemingly

none of the kids in her children’s classes spoke English or shared any understanding of Australian culture.” Her friend’s six-year-old son had started to speak better Chinese than English, and she finally felt obliged to move him out.

While cities from Arcadia to Sydney certainly benefit from an influx of Chinese money and talent, local governments must also be prepared for numerous challenges. Given that a multitude of China’s fourth wave Phase B immigrants exceed locals in wealth, cities face risks of escalating friction as natives are increasingly pushed out of city centers. Yet if countries add stamp duties as Australia has done, they also run the risk of being perceived as racially discrimina-tory—singling out and excluding Chinese—and may ultimately sabotage metropolitan efforts to attract consumer wallets.

Countries and cities must therefore craft policies that strike a middle ground, attracting investment without causing tension. In an effort to placate both its locals and immigrant Chinese population, Australia now requires Chinese to buy only new homes, for example. This way, the nation can ensure that resale homes in central locations remain reasonably affordable for locals, at the same time jumpstart-ing economies farther from urban centers with new real estate developments.

As domestic deterrents and international allure pull China’s wealthiest consumers across the globe, Chinese immigrants will continue to provide highly profitable opportunities to small and medium enterprises (SME) catering specifically to the Chinese wallet. For the most part, Chinese immigrants will remain oriented toward English-speaking countries most renowned for their housing and education. Yet within these regions, mainlanders will continue to gravitate towards the locales of earlier Hong Kongese and Taiwanese immigrants, primarily given the prevalence of food and services already adapted to Chinese tastes. Accompanied by large sums of money, the newest wave of Phase B Chinese will establish deepest roots in the communities where they buy real estate. Unlike previous investors, however, mainland immigrants are no longer speculating about the prospects of a life abroad. With feet planted firmly, they now wield purchasing power in a multitude of industries, engaging in the everyday life and developments of neighborhood, municipal, and national economies.

Chinese immigrants can play a positive role in a nation’s culture and econ-omy—nations just need to make sure that money from Chinese immigrants does not price locals out of the housing market and totally change the makeup of schools and other public institutions.

 

******

Dialogue:

Austin Fragomen, Partner and Chairman, Fragomen, Del Rey, Bernsen & Loewy LLP; and Becky Xia, Fragomen Partner based in Shanghai

I first met Austin and Becky in 2016 when I keynoted their annual partner’s conference. Finding their knowledge of Chinese immigration deep, I wanted to hear their insights into Chinese immigration as well as how Chinese companies are starting to send more Chinese expatriates abroad.

Rein: To which countries specifically do you see wealthy Chinese immigrating most and why?

Fragomen: The United States remains the most popular destination for HNWI24 investor immigrants for the third year running. Canada, which has been behind the UK for the last two years, overtook the UK for the first time in 2017, while Australia remains in fourth. Malta, Antigua, and Dominica enter the top ten for the first time, according to the Chinese Immigration Index. Other popular places include, but are not limited to, Europe (e.g., Spain, Portugal), New Zealand, Singapore, Hong Kong, Macau, Malaysia, and Japan.

Education and living environment continue to be the main reasons for emigrating overseas for the fourth consecutive year, accounting for 76% and 64%, respectively; with access to cleaner air, safer food, and better education driving emigration. These immigrants want better options for their children’s education; they are distressed about the growing pollution problems, and they are concerned about food safety in China. Among these factors, education for the next generation may be a major one—58% of the investment-based immigrants chose to move for this reason. Other Chinese chose to emigrate because they want to protect their individual assets and properties, to avoid high tax rates in China, to enjoy access to better medical treatment, and to receive stable investment environment and visa-waiver programs.

At the outset, this movement is, generally speaking, still not about migration in the traditional sense, but rather flexibility, ease of mobility, and, in its most basic form, an insurance policy. Where there is an element of settlement involved by some members of the family, it is primarily education driven. This is reflected

||

24 High Net Worth Individual

in the countries that prove most popular amongst Chinese nationals. Of the top 20 ranked universities globally, 15 are in the United States, and 4 are in the UK (Times Higher Education World University Rankings, 2016–2017).

Cities that are experiencing greater increase in Chinese immigration are mainly in the U.S. and Canada. For example: Los Angeles, Irvine, San Francisco, San Diego, San Jose, New York, Seattle, Portland, Orlando, Boston; and in Canada: Toronto, Vancouver, Markham, Richmond, Calgary, Burnaby; as well as London (UK), and Auckland (New Zealand).

The reasons for such increased immigration flow include: (1) many of these cities have the history of being an immigration center and already had a well-developed Chinese community. This enables “newcomers” to adapt to local society and life more easily and quickly; and (2) those places are considered as a “good place” to live in people’s perceptions and seem to meet the requirements of having cleaner air, safer food, good education, and quality healthcare.

It is telling that Antigua and Dominica have entered the top 10 this year as long waiting times are considered the biggest hindrance to overseas immigration by this demographic, followed by language barriers, the difficulty of integrating into mainstream society, and application difficulties. One of the key features of Caribbean programs is their streamlined application processes, designed to facilitate, and of course lower, investment thresholds that are seen elsewhere.

Rein: Do middle class Chinese tend to immigrate to different countries or cities than their wealthier counterparts? If so, to what regions or nations are they moving and for what reasons?

Fragomen: In general, the middle-class Chinese follow the steps of the wealthier Chinese. The current trend is to immigrate to well-developed countries that can provide clean air, safe food, better environment, quality education, and so on. More and more middle-class Chinese choose to establish alternative residence options outside of mainland China, for family if not themselves, because they want to enjoy a slower-paced life and enable their children to be freed from fierce competition in China to explore alternative educational and social environments. They emigrate for better quality of life rather than for better opportunities or political freedom.

Meanwhile, due to the limit of available capital, some choose Southern European countries (e.g., Portugal, Italy, and Greece) that require lower investment criteria compared with tier-1 destination countries like the U.S. and Canada. Currently these options offer long-term routes to other European countries and,

currently, the UK through free movement provisions, although that is likely to change after Brexit.

The statistics now add the Caribbean options to this category. In our view, this signals an increased appetite for strategic alternative citizenship solutions, rather than the actual long-term movement of Chinese nationals to these destinations.

Rein: Several analysts argue that Chinese are immigrating because they oppose China’s Communist Party and its policies. Do you agree with this view and to what extent?

Xia: Political opinions seem to play a minor role.

It should be acknowledged that compared to political factors, economic factors, purpose and drive to change/improve one’s living standards, seem to play a dominant role. We can already see that the access to better education, good environment, medical care, and safe food have become a primary driver for Chinese to emigrate to another country.

Rein: Previously, the wife and children of immigrating Chinese families would move overseas while the father remained in China to generate earnings. Is this trend still the case? Or is it more common to see Chinese families or retiring parents immigrate at once?

Xia: This might still be the case for Chinese immigrant families, especially where the father’s job is the main resource of income. Middle class or working class immigrant families may encounter financial problems if the father cannot find jobs with equivalent income in the destination country. On the other hand, although Chinese economics have slowed down, the job markets in the destination countries may not always be welcoming, and there may be more requirements for the immigrant to find a good job there in terms of language and skill sets.

In an immigrant family, if the main reason for immigration is to offer the children better education, normally the mother will accompany the child to study overseas while the father continues to work and live in China to continue to support them financially.

Again, this is not migration in the traditional sense, but rather a strategic alternative residence driven by a desire for flexibility. The growth in popularity of Caribbean programs demonstrates this.

Malta enters the top 10 for the first time in 2017 and is a case in point. Malta’s Investor Program requires effective residence to be shown for a main applicant (but not family members). This requirement is fairly nonprohibitive, allowing for

the dominant earner to establish their family in a country where they gain free movement rights across the EU.

Rein: Do you consider the Trump administration’s anti-immigration policies to be a risk for Chinese immigration to the U.S.? Or are Chinese wealthier and better educated than most immigrants from other nations and therefore still welcomed by America? To what extent do current U.S. policies deter or cause fears amongst immigrating Chinese? Are these fears sufficient to make Chinese immigrants look to other destinations? If so, which countries are benefitting from an increase in Chinese interest?

Fragomen: No, Trump administration policies do not appear to be deterring Chinese immigration to the United States. The biggest deterrent to Chinese immigration continues to be the lack of immigrant visa numbers (“green cards”) for mainland Chinese citizens given the per-country limitations imposed by Congress well before the Trump administration.

By way of background, the United States Congress limits the number of employment-based immigrant visa numbers issued per fiscal year. No one country can receive more than 7% of the annual total and if the demand exceeds the supply there is backlog or “retrogression” for applicants and a delay in the ultimate approval of the green card. For instance, in the EB-5 investor category, popular with high net worth Chinese citizens, the government is only looking at applications filed on or before June 15, 2014, given the high number of applicants from mainland China. It is the extreme delays in case processing that deter the immigration to the United States and the need for investors to seek alternative immigration paths—such as non-immigrant entrepreneurial options including the L-1 intracompany transferee visa.

Given the alternative immigration paths available in the United States, demand from China remains strong. However, for that small subsection of high net worth individuals that feel the United States is no longer a welcoming destination for Chinese immigrants, they might consider other immigration countries such as Canada and Australia, or even some new immigration countries such as Southern or Eastern Europe.

Rein: Recently, some countries and their urban locals have grown concerned that wealthy Chinese immigrants are raising housing prices to the point at which locals can no longer afford to live in certain neighborhoods. To what degree do you consider this an issue, and how should countries deal with these concerns without deterring Chinese immigrants and their investment?

Fragomen: In the countries where the immigration program related to real estate purchase is available, their cities can attract the wealthiest individuals from all over the world, including wealthy Chinese. From the top 10 destination list, these countries include Antigua, Dominica, Portugal, and Spain.

However, in a lot of these countries, non-immigrants are also allowed to invest and purchase. It really depends on what countries we are talking about and their specific investment and immigration policies.

The housing market in some of these cities can, however, cause the displacement of the lower-income locals. This very problem contributed to the closure of Singapore’s Financial Investor Scheme in 2012, which was replaced by the more stringent Global Investor Program—with no resident property purchase option available. The UK also removed the option to invest 25% of a Tier 1 Investment in real estate in late 2014.

Given the higher housing prices in the city, locals choose to move away from central areas and possibly away from immigrants. This may cause potential social and economic issues, and the party of interest may take this as an opportunity to raise more anti-immigration policies while immigrants may not always be the sole responsible party.

The destination countries should think of a good balance between attracting investment and maintaining a healthy local economy. They may consider limiting foreign investment through restricting purchases and placing higher taxes for non-resident buyers, so that there could be a distinction between the purchases placed by immigrants and non-residents.

Rein: Aside from rising housing prices, what other issues should Chinese immigrant destination countries be concerned about? How should they deal with these problems?

Xia: The locals also often fear that cheaper and illegal foreign labor may take jobs away from them, as well as having too many immigrants will weaken their local culture and solidarity.

A better understanding of the local market demands and suppliers may help both the government and local residents deal with the fear. One way to help immigrants blend in more quickly is to offer solidarity courses or programs so that they can join the mainstream society in the destination country as soon as possible.

Rein: How has Fragomen’s business expanded in the realm of helping Chinese companies get work visas for going abroad? Are your clients primarily growing organically or through outbound M&A?

Fragomen: We have been helping more and more Chinese companies with their immigration matters in and outside China and we are becoming more well-known among the Chinese companies as a global immigration firm, which can not only help them in obtaining work visas for different countries but also provide valuable strategic immigration solutions in their globalization. In our view, most Chinese companies are growing organically as they expand their business globally.

As governments move toward more immigration restrictions and compliance provisions, Fragomen is well-positioned to assist Chinese citizens and companies find creative solutions for their personal and business immigration needs. For instance, in the U.S. market, as the more traditional immigration paths have narrowed because of backlogs (e.g., EB-5 category), Fragomen is uniquely positioned in the market given our full-service offering to use a combination of entrepreneurial non-immigrant visa options (e.g., L-1s and H-1Bs) and other employment-based immigrant categories such as the EB-1 extraordinary ability and intra-company transferee visas to successfully assist companies and citizens quickly enter the United States.

Case Study:

Bring Chinese to You and Focus on Integrity and Morality

When I was growing up in New Hampshire in the 1980s, Larry Bird and the Boston Celtics ruled the basketball courts.

Decades later, when my son Tom developed the interest and showed hints of aptitude for basketball, I sent him to Boston Celtics summer camps held at the team’s training facility in Waltham, Massachusetts. Thrilled by the sight of its regal banners highlighting all the Celtics Finals wins I’d celebrated in my youth and jerseys of Hall of Famers Bird, Robert Parish, and Kevin McHale, I was likely more excited than Tom was, the first time I was let into the locker room.

It was at Tom’s summer camp that I met 78-year-old Joe Amorosino, the General Manager and Supervisor of the Celtics Camps. Having begun his career nearly 60 years earlier at Hopkinton High School, Joe became at the time Massachusetts’ youngest ever head of a high school basketball team. Over the decades, dozens of his players went on to play college basketball or went pro in Europe.

A notable member of the Massachusetts Basketball Coaches Hall of Fame, Joe has the compassionate smile of a teacher. When I sat down to talk to Joe about his camp, I was curious to ask him about how it had changed over the years. Looking around the second time I sent my son to the camp, I was surprised at the increasing number of Chinese campers compared to the previous years. When I mentioned the observation, he nodded knowingly. “In 2015 we had 30 kids from

Shenzhen, China. And many more were keen to get in on the program,” Joe explained. His camp had been contacted by a for-profit league in Shenzhen that brought the campers in a group, accompanied by coaches. When I inquired whether Joe had continued to collaborate with the Shenzhen firm, he explained that Chinese demand had shifted dramatically from group-based to individual. “We are still in touch and they still send players but we have found more and more players from China are booking directly through our website with us.” Even in the previous two years, more and more Chinese parents sought to book trips on their own rather than through a group-organizing agency. As I looked around the waiting room, I found many Chinese parents waiting and watching their kids play.

Savvier consumers with customized demands, Chinese parents by and large now prefer to research specific camps, planning their children’s trips individually. Many will even select camp locations to match up with family holiday destinations, touring with their children after summer camp completion.

Nonetheless, Joe’s Chinese campers have risen greatly in number over the years, now a group of wealthier youngsters whose families book directly. When I asked Joe about the primary reasons for Chinese demand, his answer was immediate: “They like two things. One, we focus on the fundamentals; and two, we are centered around a mentality of teaching the whole camper, focusing on morality and character rather than the sheer goal of winning.”

Joe’s words were echoed by one parent I spoke to. One Beijing woman, Julia Yan, whose 11-year-old son attended the camp told me, “I like how the camp focuses not just on basketball skills but also integrity and morality.”

Frustrated with Chinese schools’ rigidly fervent focus on winning, and only winning, wealthy Chinese parents have sought to counterbalance domestic academic stringency with a more holistic approach to child development. In light of the crushing pressure to get ahead faced by their children, Chinese parents have increasingly jumped on the bandwagon of team-building and moral education. Precisely fitting the bill, one of Joe’s trademarks is his “Thought of the Day,” in which he praises the virtues of good character and integrity, often focusing on self-discipline, perseverance, and personal responsibility.

That said, one of the benefits of the Celtics camps is they have a good mix of nationalities among campers. By far, Americans make up the vast majority of campers. This is important for Chinese parents—they want their children to learn about American culture and, perhaps most importantly, want them to practice English rather than hang out with other Chinese students. For the Celtics camps, it attracts the very best American youth basketball players as well as international students—which fits Chinese desires.

Key Action Items

  1. Cater to Chinese consumers that increasingly book directly rather than through group-based agencies. Apart from seeking cheaper options, Chinese parents prefer doing autonomous research and selecting camps that match their customized demands. Even small and medium enterprises will do well to set up advertising campaigns that target Chinese families on websites like Ctrip, or via social media platforms like WeChat.
  2. While all parents are interested in the tangible aspects of a camp (or school)—
    such as academic quality or the athletic prowess of the coach—it is important that companies emphasize morality and character-building as conveyed through Joe’s Thought of the Day. Apprehensive about the “make money at all costs” mentality dominating China’s academic and social institutions, many wealthy Chinese intentionally send their children to the U.S. or Europe to nurture character and integrity.
  3. Ensure that the number of attending Chinese campers—or that of any non-Western campers for that matter—is well exceeded by the number of American or native English-speaking students. Chinese parents are eager for their children to be ensconced in an American learning environment, both for the purpose of improving their English language skills and for immersion in the culture. Most parents will refuse to send their kids a second time—further criticizing a camp in WeChat groups populated by other potential custom-ers—if the majority of a camp’s attendees are Chinese.

 

Shaun Rein

Shaun Rein author of “The War for China’s Wallet” is the Founder and Managing Director of the China Market Research Group (CMR), the world’s leading strategic market intelligence firm focused on China. He works with Boards, CEOs and senior executives of Fortune 500 and leading Chinese companies, private equity firms, SMEs and long/ hedge funds to develop their China growth and investment strategies.

Rein authored the international best-sellers the “End of Cheap China” and the “End of Copycat China.” Publishers Weekly named “Cheap” a top 10 business book for 2012. The Financial Times called “Copycat” “Intriguing.”

Rein is regularly featured in the Wall Street Journal, Fortune and The Financial Times. His op-eds have appeared in the New York Times. He frequently appears on CNN, BBC, NPR, MarketPlace, CNBC, Bloomberg, Business InsiderPBS and MSNBC. Rein formerly taught executive education classes for London Business School and previously was a weekly columnist for CNBC and Forbes and also wrote a regular column for Bloomberg BusinessWeek.

Rein is one of the most sought out keynote speakers focused on China’s economy, consumer trends and innovation to groups ranging in size from 10 to 3000. Speaking engagement clients include: Estée Lauder, Adidas, Tencent, P&G, Morgan Stanley, HSBC, AXA, JP Morgan, Credit Suisse, SASAC, Baker McKenzie, Blackrock, KPMG, Macquarie Bank, Mizuho Bank, Nomura Securities, Baird Private Equity, AT Kearney, Herman Miller, Deloitte, Jefferies, Global Sources, Fragomen, CPA Australia, Clariant, Solvay, Citywire, ICDA, Radius Travel, Abacus, Crain Communications, HKDC, Sodexo, Worldwide ERC, NZ Conferenz, Verlinvest, Australian Financial Review, Nine Star 九星, CeBIT, Barry Callebaut, Nestle.

He has given speeches around the world including South Africa, Australia, the US, France, United Kingdom, Canada, New Zealand, Thailand, Singapore, Mexico, Vietnam, Japan, South Korea, Hong Kong, China.

 

 

 

 

 

 

Endnotes

Chapter 7

The War for China’s Wallet

i Los Angeles Times, How Arcadia is remaking itself as a magnet for Chinese money, 2014, http://www.latimes.com/entertainment/arts/la-et-cm-arcadia-immigration-architecture-20140511-story.html

ii Migration Policy Institute, Chinese Immigrants in the United States, 2017, http://www.migrationpolicy.org/article/chinese-immigrants-united-states

iii Bloomberg, Why Are Chinese Millionaires Buying Mansions in an L.A. Suburb?, 2014, https://www.bloomberg.com/news/articles/2014-10-15/chinese-home-buying-binge-transforms-california-suburb-arcadia

iv PBS, Column: What’s really at stake in the EB-5 investor visa overhaul: honesty, 2015, http://www.pbs.org/newshour/making-sense/column-whats-really-at-stake-in-the-eb-5-investor-visa-overhaul-honesty/

v OurDocuments.gov, Chinese Exclusion Act (1882), https://www.ourdocuments.gov/doc.php?flash=false&doc=47

vi Google,

https://www.google.com/search?q=china+unemployment+rate&oq=china+unemployment+ rate&aqs=chrome.0.0l6.3159j0j9&sourceid=chrome&ie=UTF-8

vii PRI, Why Chinese immigrants choose America, 2012, https://www.pri.org/stories/2012-12-21/why-chinese-immigrants-choose-america

Pew Research Center, The Rise of Asian Americans, 2012,

http://www.pewsocialtrends.org/2012/06/19/the-rise-of-asian-americans/

viii CNN, Why Asians want to move to the U.S., 2012,

http://www.cnn.com/2012/07/19/business/asia-u-s-immigrants/index.html

 

40% Off The War for China’s Wallet

To take advantage of this discounted price for a limited time, please call Triliteral LLC for discounted price and free shipping and mention discount code DEGPRESS40 and the ISBN 9781501515941   Tel: 1-800-405-1619

 

 

December 11, 2017