Expats in China Turn to Entrepreneurship

After a recent spate of travel to Shanghai, Guangzhou, and back to Beijing, I was blown away by the number of my foreign friends and colleagues that have gone the route of entrepreneurship. Some are doing it out of necessity or desperation, while others are pursuing passions or unique talents. These friends, along with recently beginning my own entrepreneurial venture, inspired me to write this piece in China US Focus:

Expats in China Turn to Entrepreneurship

(originally published in China U.S. Focus)

Recently, the apparent exodus of expats from China has surfaced as a popular topic for international news outlets and social media. In February, a study by UniGroup Relocation cited by the Wall Street Journal indicated that twice as many expats left China last year than moved in. Indeed, China can be a tough place to live. Overcrowded cities, slow Internet speeds with frequent interruptions, and choking air pollution are enough to make even the toughest expat consider moving out.

Yet, this is only part of the story. While many highly paid expat executives and specialized workers are leaving in droves, a new generation of adaptable, entrepreneurial expats is emerging to replace them. The implementation of certain new Chinese policies, such as the launch of the Shanghai Free Trade Zone, indicate that the Chinese government is very motivated to create a smoother runway for foreign talent to contribute to the country’s innovation drive.

Facing a Challenging Job Market

After China’s economy opened up in 1978, and throughout the 1980s and 1990s, large corporations looking to take advantage of low labor costs and high productivity in the Chinese market dominated Western presence in China. The expats of those days were mostly company managers coaxed into moving to China to oversee the operation for an extended period by higher-than-average salaries, stellar benefits, and typically an end date for their term of service.

As China has changed, so have the dynamics and demographics of expats in China. More Americans started picking up Chinese in college in the 2000s, and slowly Americans have started coming to live in China for further studies, teaching English, or pursuing other work experience. Around the time of the 2008 Beijing Olympics, it seemed to many college grads that moving to China would be a faster jump-start to their careers compared to entry-level jobs at home.

Today, that is less true. Working in China for a foreigner has become even more challenging. For starters, Beijing and Shanghai are expensive; by many rankings, both cities are among the top 10 most expensive cities to live in the world. That does not bode well for young college grads. Moreover, good jobs for expats appear to be harder and harder to come by. Foreign companies that have been in China for some time now are seeing their tax-free incentive packages mature, and profit margins are going down. Thus, they are less willing to offer higher priced expat packages. On top of that, local Chinese talent educated in the West is increasingly available, and in most cases local companies will only hire expats as a last option.

China encourages foreign entrepreneurship and new market investment

Though the traditional expat job market is dwindling, new, more lucrative opportunities are emerging for those that are willing to pursue entrepreneurial or new market ventures. The start-up world of China is just taking off. Tech hubs and start-up incubators are now popping up all over China. Incubators including 500 Startups, Innospring, and Techstars all have established operations here to catch the wave of the new tech start-up craze.

According to the South China Morning Post, more than 100 foreign tech start-ups have popped up in China in the last few years, and the Chinese government seems poised to grow that number. In January, the China Daily reported, “policy incentives will be launched in different areas of China to support talents from overseas.” According to Zhang Jianguo, director of the State Administration of Foreign Experts Affairs, “We have to focus on the nation’s strategic goals and attract high-level talent to start innovative businesses in China.” With this type of attitude, it seems likely that we should expect new programs to attract start-up businesses from abroad to China.

In fact, one might say that the Chinese government is becoming even more innovative in its quest to attract entrepreneurial minds. In 2013 in Fuzhou, the capital of Fujian province located right across from Taiwan, the local Bureau of Foreign Experts Affairs launched a start-up incubator program to provide free workspaces and investment to attract up and coming foreign start-ups. Around the same time, the Shanghai Free Trade Zone was established to make it easier for foreign businesses to be established in China by taking a great deal of red tape out of the typical business registration process.

While westerners are familiar with the metropolises of Beijing and Shanghai, more opportunities will continue to emerge in the central and western parts of China. This is because more and more factories are moving west as transportation infrastructure combined with low land cost and local government incentives lure manufacturers. The Chinese government frequently publishes new editions of the “Catalogue of Priority Industries for Foreign Investment in the Central-Western Regions,” which lists incentives and programs for foreign investment into high-target areas in the less developed parts of China. Expats willing to explore these new markets, living and working in places not often traversed by foreigners, will be pioneers.

To take advantage of these opportunities, American businesses will no doubt need culturally skilled, and well-connected, expats to be a bridge to those programs. The entrepreneurial expat that is committed to developing a sustainable business idea, and stick it out long enough to build necessary relationships here in China, should profit substantially. This is the new generation of expats in China.

The Age of Chinese Outbound Private Investment – Published in China US Focus

I am honored to once again be published in a great periodical, China US Focus. This week, I discuss a growing trend that deserves all of our attention: the rise of Chinese private outbound investment. You can read the article on China US Focus here, or read on below:

The Age of Chinese Outbound Private Investment

While the mainstream media debates the future of the Chinese economy, the opportunist understands that China’s rapid economic growth path is only just now starting to bear fruit. We are at the beginning of a new chapter in the Chinese economy: the age of outbound private investment.

It is no secret that during China’s historic economic rise, the country has made significant investments abroad. But up until just a few years ago, a vast majority of this investment was state-led. According to the Rhodium Group, from 2000 – 2011, 70% of China’s outbound investment was carried out by state-owned enterprises. The economic climate has changed drastically in a short amount of time. In 2012, private firms represented 80% of China’s outbound transactions, and just this year, private companies accounted for 16 out of 17 Chinese outbound M&A deals.

Private firms are increasingly looking into more mature markets like the United States to grow their companies. Top industries of choice for Chinese firms include engineering and contracting, energy and mining, household appliances, automotive, and financial services. These types of investments save and even create jobs in the United States, further integrating our two economies and building a great pie.

Recently, there have been a few high profile purchases by large Chinese companies. Last year, Chinese real estate and entertainment conglomerate, Dalian Wanda Group, purchased AMC Theatres for over $2 billion, and is gearing up to use it as a platform for further expansion into the U.S. market. Even more recently, China’s biggest pork producer, Shuanghui International, bought out Virginia-based pork producer Smithfield foods for $4.7 billion.

It’s Not Just About the Companies, It is About the People 

These large-scale private purchases are merely harbingers of a greater trend of private investment and people flow between the United States and China. It truly is the dawning of a new age.

Chinese individuals are more and more looking for ways to get their assets out of China. They are spurred not only by uncertainties about the future of the Chinese market, but also certain present realities. A great majority of China’s private wealth has been built on real estate. But now, in an effort to push down inflation and prevent a housing bubble, the Chinese government has been imposed strict regulations on real estate speculation. In Beijing, for example, the purchase of a pre-owned home is now subject to a 20% tax. On top of that, even owning a second home in Beijing has been banned for new buyers.

There seem to be more changes on the horizon that are causing Chinese investors to look outward. The Chinese weibosphere (equivalent of U.S “twittersphere”) went crazy early in October when a State Council member announced that as part of the upcoming plenary session, the government is considered installing an inheritance tax.

In light of all of all this, entrepreneurial Chinese are wasting no time figuring out ways to get around this by getting out. Emigration to the West has become a preferred option. Tens of thousands of Chinese high net worth individuals are emigrating every year. They see an American green card or other residency permits in Western countries as a safety precaution; a vehicle to make it easier to move money, and their families, out.

Still, China does not make it easy on individuals to get their money out of China. According to Chinese law, an individual is only allowed to transfer up to 50,000 USD worth of Chinese yuan out of the country annually. That means that these investors need to be creative and use their network to move their assets into foreign markets.

This bodes well for foreign financial firms and money managers that stand to grow a multitude of Chinese clients in this space. Currently, there is $4 trillion of private wealth sitting around in China. Astonishingly, only 7% of that is under management. That means over $3.7 trillion of Chinese wealth is unmanaged. Why is this the case? The concept of having third party management of wealth has only begun to emerge in China. In the Chinese economy, the guanxiculture that places so much emphasis on who you know that it makes people very unwilling to trust others, even professional financial managers, with their money. But now, the learning curve that comes with investing in foreign markets is now forcing Chinese to look to professionals to help them.

New Investors, New Markets 

In fact, if Americans can understand how new and untapped this opportunity is, an earnest effort to seek out and welcome private investment from China can help to resurge our economy and rebuild communities that need a kickstart. Americans and Chinese people are actual two sides of the same coin; largely what we know about each other is what we read in the newspaper. For that reason, it is no surprise that historically, individual investment in the United States from China has been concentrated in large, high-exposure markets like New York or Los Angeles. The tide could be turning, however, as more and more investors understand that those markets are becoming saturated. They are starting to look for answers elsewhere.

Take Detroit for example. Although the Detroit market on the surface seems decrepit and failed, the Detroit real estate market has struck a cord amongst Chinese homebuyers. According to the United States National Association of Realtors, the Detroit market was one of the top 5 most inquired about markets amongst Chinese real estate buyers. This seemingly is an anomaly when considering the other markets that have historically caught the eye of Chinese such as New York and Los Angeles.

In Milwaukee, we have been able to attract hundreds of millions of dollars through the EB5 program from Chinese investors. These people are becoming more sophisticated, understanding that the best, safest, and even potentially biggest boon markets in the United States are outside of the major metropolises that they have heard of.

The time is now to start building relationships of trust directly with Chinese investors. The wave of outbound Chinese investment is only just beginning; the playing field is leveled. The question is, are you ready to ride the wave?

“China Dan” – By Tom Watkins

I’m flattered by a recent article posted in Dome Magazine by Tom Watkins highlighting my China journey. The article is called China Dan, and you can read the article on Dome here or read the whole text below.

Truthfully, my global journey has been an amazing experience, but its a road that I do believe will lead me back to the Mitten state someday!

China Dan

by Tom Watkins

There is much angst about the brain drain in Michigan. You’ve heard it: Our young college grads securing education, knowledge, skills and talent only to flee the state after graduation.

Yet it is a big world out there, and Michigan has two beautiful peninsulas — we are not an island.

Perhaps Michigan will benefit from the worldly experiences our youth gain elsewhere, if the magnetic pull of Pure Michigan can draw them back someday.

I met one such young man, Dan Redford, in his senior year at Michigan State University. He flew the coop and now makes his home in Beijing, China. Dan is fluent in Chinese and bleeds “Green” as a proud MSU grad.

Redford earned a bachelor’s degree with a double major in Chinese and international relations from James Madison College at MSU.

Redford, now 25, originally wanted to get a political science degree and attend law school. That all changed after his first trip to China in 2008.

Why China? He first fell in love with the language, and after his Middle Kingdom trip in 2008, taking in the sights, sounds, culture, language and people, he was hooked. The added excitement of the 2008 Olympics pulled him into the China orbit.

Redford grew up in Frankenmuth, a town of 4,000 people – in stark contrast to Beijing’s nearly 20 million people. As he says, “There are nearly as many people in my Chinese apartment building as there are in the entire city of Frankenmuth”.

Living in the Chinese capital, Redford feels like he is at the center of the most dynamic, unfolding story of the modern world. He clearly is, as China is the fastest growing large world economy, bursting with possibilities. Going forward, all major world geopolitical issues will intersect at Beijing and Washington, D.C.

Redford is director of China operations for First Pathway Partners of Milwaukee, promoting this Midwest state in China. Yet, he is a Michigan cheerleader, as well as one for Wisconsin, and a one-man marketing crew promoting the Mitten State with his unbound enthusiasm.

Does he miss Michigan? Of course. He would like nothing better than to mesh his love for Michigan and love for all things China. His life ambition is to “make a lasting impression on everyone I meet, and meet as many people as possible before I’m done.”

Redford credits his time at MSU with helping to open his eyes to the world. His first trip to China was through a study abroad program. MSU taught him to “think globally”.

Redford appreciates Governor Rick Snyder’s efforts to make Michigan a friendly place for immigrants and to build bridges.

“Governor Snyder is taking risks to propel Michigan forward past denial and to thrive on the global stage,” he says.

When asked what advice he would offer high school kids, he responds, “Find something to be passionate about and let God be your compass. Let your passions drive you forward.”

Sound advice from a young man who has circled the globe.

Yes, Michigan has lost Redford for now.

At some point in the future, he will return to Michigan and our state will get its ROI — return on investment — from his global experience and perspective.

Imported From China – An MSU Documentary

As it is every day, it is GREAT to be a SPARTAN.

I am so proud of my friend, colleague, and professor, Dr. Geri Zeldes of Michigan State University for producing and directing a great documentary about the experience of Chinese students at MSU, Imported from China. The documentary featured the journey of a few Chinese students at MSU, along with American students that reflect on their interactions with the influx of Chinese in our community. It premiered at MSU on September 17th, and will soon be distributed widely. I believe it will be a great tool for any university or school that is experiencing an influx of Chinese students and is looking to serve them better.

I am honored to have been interviewed and included in the documentary, along with some of my other respected and dear friends, including Jing Cui, Tom Watkins, Peter Briggs, and Joy Fu.

MSU is currently home to over 3,600 Chinese students. This puts our university at the heart and center of one of the world’s most dynamic and unfolding stories – the one between China and the U.S. As the documentary says, “Like it or Not, we are linked together.” At MSU, we are creating leaders of a generation that I believe will guide us through a prosperous and fulfilling modern U.S. – China relationship.

 

If you are interested in screening this video at your school or for your alumni club, please contact me and I can put you in touch with Geri.

 

What is China saying about the Detroit bankruptcy?

Obviously, some of the biggest news to come out recently in Michigan, and quite frankly, the nation’s, history, was that of the Detroit bankruptcy. Since I live in China, I took the liberty of compiling a few headlines from major Chinese newspapers and e-zines to give you a glimpse into what Chinese media is saying about the bankruptcy. Indeed, Detroit has a long way to go to change the perception as a crime-ridden, impoverished place. Here’s to looking up!!

 

1. “底特律破产带给中国的启示:城市不是造出来的”  (Detroit’s bankruptcy has revealed to China one thing: The city cannot be built)

Source: Sohu Business

2.” 底特律破产警示城镇化弯路 “(Detroit bankruptcy warns the winding course of urbanization)

Source: Guangzhou Focus

3. “七嘴八舌话底特律破产” (A Lively Discussion in the Auto Industry about Detroit Bankruptcy)

Source: Auto.sina.com.cn

4. 底特律申请破产 “造中国底特律”论遭质疑 (Detroit’s Bankruptcy Raises Doubts about building a “Chinese Detroit” Partnership)

Source: Anyang Online (originally from Xinhua)

5. 底特律破产风险有多大 (Detroit’s Bankruptcy: How Big are the Risks?)

Source: QQ.com Auto

Detroit Attracts Chinese Real Estate Buyers – Detroit News Op Ed

The U.S. National Realtors Association recently announced as part of its report that Detroit ranked in the top 5 in terms of inquiries from Chinese buyers interested in U.S. real estate.

This is an awesome revelation and opportunity for Detroit! I co-wrote a piece on the topic with my colleague, Lamar Irby and Bryan Withall, and the Detroit News picked it up! You can read the op ed by clicking here or read the original below:

Detroit breaks the top 5 for inquiries from Chinese Buyers of U.S. Real Estate

By Dan Redford, Bryan Withall, and Lamar Irby

The time may be right for Detroit to roll out the red carpet for Chinese real estate buyers. In the recently published, “2013 Profile of International Home Buying Activity” by the U.S. National Association of Realtors (NAR), Detroit ranked in the top 5 among hottest cities receiving inquiries from Chinese buyers looking to purchase real estate in the U.S. It certainly stood out as the most unlikely in the group, considering the other cities – Los Angeles, Irvine, Las Vegas, and Orlando – have long been established as strongholds for attracting Chinese investors.

 

How could this be? This recent announcement may not come as a surprise to those that were following Chinese CCTV and social media on the Detroit Real Estate market earlier this year. In March, the China Daily reported that some real estate properties were available in Detroit for $100. On China’s Twitter, Weibo, the term “Detroit Real Estate” was also trending along with “pixie” (English: “leather shoes”), using leather shoes as a metaphor for how cheap Detroit real estate is. The CCTV report alone garnered 1.2 million posts on Weibo, according to “Want China Times.”

 

The “leather shoes” phenomenon quickly died down in the media, but not before at least some Chinese buyers made purchases. And what is now made clear from the NAR report is that Chinese buyers for the moment have their eyes on Detroit. With increasingly strict purchase restrictions and higher taxes for Chinese citizens in their domestic market, the increasing trend is for Chinese to invest their growing assets abroad.

So, how can Detroit take advantage of this opportunity? While it is unlikely for the cheap $500 home buys to be a boon for the city of Detroit, the last thing Detroit needs is to lure Chinese investors into quick, cheap deals that end up being “less juice than squeeze,” if not financial disasters. Clearly, Detroit has a compelling real estate market and economic story of rebirth to tell. A strategy that highlights good deals in good communities in Metro Detroit could build a pipeline for long term Chinese real estate investment and more.

 

Success will come down to how well real estate brokers and officials can tell the story of Detroit and ultimately execute purchases. It’s not that Detroit is without merit. For starters, Detroit’s real estate market prices climbed 13.6% year on year from 2011 to 2012. With prices for homes in Detroit well within the median Chinese purchase price of $425,000, this evidence should be taken as an encouraging sign of vibrancy in the Detroit market.

 

The Chinese should also be invited to be part of the revitalization of Detroit. In the June 7, 2013, Financial Times Life Section cover story, “The Future of the American City,” Detroit was profiled as a “city in the midst of a mini-boom.” The article cited several large investments and businesses recently moving in to the city, such as the high-profile purchases of Quicken Loans CEO Dan Gilbert, as evidence to show that Detroit is indeed gradually rising. Real estate brokers in Detroit should consider translating this article into Chinese and spreading it to the Chinese market.

This can happen. Detroit can build again, and now is the time to welcome the help of our Chinese friends whose interest is already peaked.

Dan Redford graduated from Michigan State University and is the Director of China Operations for FirstPathway Partners, an industry leading EB5 immigration investment fund management company. You can follow him at danredford.com

 

Bryan Withall is the Managing Director and CEO of Sino Outbound Limited, a financial advisory firm serving Chinese investors, including both institutions and individuals, interested in overseas real estate assets and real estate related investments. For inquiries: bryan@sino-outbound.com

 

Lamar Irby is a Detroit native and serves as the Director of Finance for China ProSol Consulting Services Co., Limited (www.prosolchina.com). He is based in Beijing.