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 Canadian Immigration Investment Program is CLOSED; U.S. Open for Business

There will soon be a boom in the U.S. immigrant investment program as the Ottawa government made a surprise announcement to close their immigrant investment program.

My take on this was published in China US Focus, or you can read about it below:

Canada Closes Its Doors for Immigrant Investors: A Boon For America?

In a move that took almost everyone by surprise, last Wednesday, the Ottawa government declared that it would be closing its immigrant investment program for good. This comes after almost two years of a complete standstill in the program, with no visas being issued to any applicants since before 2012. That gridlock led to a backlog of over 65,000 immigrant investor applications, some dating back to as early as 2008.

Since the program was halted in 2012, Ottawa had maintained that the program would be opened again sometime in 2014. However, it appears that the pressure to close the program proved to be too great. Unfortunately, for those that have been waiting in line, in some cases for perhaps four years or more, there will be no Canadian Permanent Residency waiting at the end of this road.

It is no surprise that the biggest demographic impacted by this bombshell decision is Chinese investors. According to official numbers from the Canadian government, around 45,000 applicants waiting in line were from Mainland China.

One Door Closes, Another Opens

As we speak, Chinese applicants and the hundreds of immigration agencies all over the country are going over options. In an industry that is far from transparent, Chinese investors that were counting on the program to be reopened are now wondering what direction to go in. Whether they were interested in living in Canada, starting a business, or in most cases, sending their child to school, their plans that had been many years in the making will have to be altered.

Just south of Canada, though, there is another country with its own investor immigration program that looks like the most natural choice for recently rejected would-be Canadian immigrants. The U.S. EB5 program boasts all of the benefits of the Canadian program, and over the next few months we may witness one of the biggest moments in the program’s history.

Canadian Program Basics

The Canadian and U.S. program differed in a variety of ways, both having merits and shortcomings in comparison to one another. From the mid-90s up until mid-2011, Canada dominated the market. The program had been a $400,000 loan to the federal government, which was returned to the investor without interest five years after making the investment. In 2011, the program was raised to a minimum $800,000 investment in an attempt to slow things down; applications still poured in which led to the 2012 halt and today’s outright cancellation.

One of the biggest advantages in the market was that the Canadian program was a no-risk loan to the government, unlike the U.S.’s $500,000 at-risk investment scheme. In a country where trust is scarce, many Chinese flocked to the Canadian program simply because they knew that as long as they could wait in line, the government would guarantee their green card and their money.

The U.S. EB5 Program: A Life Preserver for Clients Rejected by Canada

Since the stall of the Canadian program in 2012, the U.S. EB5 program has started to pick up more and more steam in the Chinese market. In 2011, 2530 EB5 visas were issued to Chinese clients, just shy of 80% of the worldwide market. In 2013, that number was already up to 6895 visas, taking up 81% of the market. That number will likely rise this year in response to the drastic change in Canada.

Agents across China that had previously made their bread and butter from processing clients into the Canadian program had started to shift their business models towards including U.S. programs on their docket, and now that trend will almost certainly go forward at a harder pace.

In many ways, the U.S. program is an easier and more attractive option for Chinese clients. Although the investment is required to be “at-risk,” it is cheaper in price: $500,000 into a venture that creates 10 jobs, as opposed to the Canadian scheme of investing $800,000 to the government. Plus, the wait times are much more reasonable. The U.S. program is averaging between 15 and 21 months, whereas at best, clients looking to the Canadian market could have expected at least a two to three year wait, if not more.

What to watch for in the EB5 program?

Many clients will be considering the U.S. program in depth for the first time. One of the most frequent questions I have received in the last few days is “Could the same thing happen in the United States as in Canada?” While there is no guarantee, it seems extremely unlikely that the U.S. EB5 program would suffer the same fate as the Canadian program. The investments, for starters, are very different functionally. As a condition of the visa, the U.S. $500,000 investment must create at least 10 jobs, which is a direct link to actual economic development. The Canadian counterpart was only indirectly tied to economic growth and job creation.

The EB5 program, most recently renewed in 2012, was actually one of the few things Congress has agreed to at all in the last few years. It was passed unanimously in the Senate and breezed through the House with only 3 dissenting votes. I doubt in an election year, any politician will risk his or her political future on taking a crack at eliminating EB5.

Indeed, what may be more important for clients now considering focusing their aim on the United States is choosing a good American partner for the investment. The Regional Center that our company operates in, the Metropolitan Milwaukee Association of Commerce Regional Center was approved in 2007. At the time, it was the 21^st regional center in America. Today, there are over 400! Competition is fierce, and most in the business are newcomers. Now is the time for clients and their agents to analyze projects closely and go with the companies that are committed to building quality, long-term, safe projects.

I believe that for whatever reasons the Canadian government decided to close its program, this is a huge opportunity for America. Communities around the U.S. that are most friendly and welcoming to our Chinese friends and other international friends, and have ready U.S. projects to boot, and will gain the most.

Dan Redford is the Director of China Operations for FirstPathway Partners, and industry leading EB5 immigration fund manager. He also serves as the President of the Michigan State University Beijing Alumni Club. You can follow him and his perspectives from China athttp://www.danredford.com.

Daring People to Dream in China – US China Focus Exclusive

I am proud to have been featured in this week’s edition of US – China Focus. This website is a great emerging tool for students of the ongoing, complex relationship between our two countries. I wrote a piece about upcoming privatization reforms in China, and how the next wave of Chinese development needs to “dare people to dream.” You can read the article on US – China Focus, or read the text below:

China’s Upcoming Privatization Reforms: Daring People to Dream in China

Dan Redford, Director of China Operations for FirstPathway Partners

For over thirty years, China’s economy has been a disruptive and powerful force in the global economy. Now, China’s newly minted leadership has the challenge of managing this powerful economy as it shows signs of tiring. Problems of high inflation, rising property values, and a high level of bad government debt all threaten to throw China’s economy off track. Further privatization has been accepted as a way to combat these challenges, particularly in opening up government project contracts previously offered exclusively held by state-owned enterprises to the private sector. To really ensure effective privatization, China must develop a culture of innovation that gives Chinese people more ownership over the direction of this giant economy.

China’s education system is a significant barrier to innovation. Unlike in the United States, where education involves a healthy mix of in-class testing and extra-curricular activity, China’s education system is almost 100% based on test scores. From primary school all the way through to high school graduation, Chinese students are preparing for the gaokao, a written test that each student takes after completing high school that will determine their collegiate path. It is a high-pressure system that forces students to focus on test scores and numbers, and does not foster creative thought.

Even more constraining is the strong divide between social classes. This is not the first time in China’s history that the leadership has made sweeping statements about reforms in China’s economy. The question is, will people believe that they will become a reality? China is divided into three basic classes – laobaixing (common people), fuerdai (the rich), and tanerdai (government officials and colleagues). These differences are so pronounced that it is hard for Chinese people to imagine any reforms that would change their relative position within this system.

These two aspects of Chinese society deter innovation, evidenced by a marked increase in dissatisfaction by average Chinese citizens in this economy, and an exodus of China’s rich, would-be innovative class.

Since moving to Beijing in 2011, I’ve witnessed the attitudes of average Chinese people go through a steady change. For common people, pride and excitement in China’s economic growth are gradually being replaced with disappointment and resentment. Last week, I had a cab driver ask me if the U.S. would consider liberating China instead of Syria. Why?

“This country is completely unfair. This country gets richer and richer, but I work harder and harder, and make less money.”

This change in attitude is growing along with divide between rich and poor. The government understands the severity of the problem. In January they released the official Gini Coefficient, which measures income disparity within an economy, for the first time since 2005. The Chinese claim that the number sits at .474, though a majority of independent assessments from scholars put the number over .6. Both numbers are over 0.4, which is considered a standard breaking point at which society as a whole starts to turn from generally satisfied to generally unsatisfied.

These statistics play out in China’s cities where working class citizens and migrants work and live in close proximity to the wealthy and powerful. Last year it was announced that over 51% of China’s population lives in urban areas, and China expects to enact plans to make that number increase to 70% by 2025. Unfortunately, with limited education and poor platforms for social mobility, the cities are being filled more and more with people that are not in a position to offer innovative value to a society that needs it.

At the same time that migrants and low-educated people are growing their presence in China’s economic hubs, certain habits of the educated and wealthy indicate a need to create incentives for innovation.

One of these habits is emigration. In a 2011 survey of Chinese citizens with net worth of over 10 million RMB ($1.53 million), it was discovered that over 60% said that they were considering emigrating from China. The survey, developed collectively by Bain and Company and China Merchants Bank, shows that the wealthy in China are either not sure about the trajectory of China’s future, or that they are just generally dissatisfied. One thing is clear is that they are not willing to stick around to spend time investing and innovating in the Chinese economy.

In China’s new era of privatization, the leadership should frame the reforms around giving average Chinese people incentives and resources to “dare to dream.” They will find ample opportunities as they start to open contracts previously held exclusively by state-owned enterprises to private companies. These large contracts should be given not just to those with government relationships, but those that demonstrate that they can give the best performances. Over time, this will provide evidence to Chinese people that society is indeed changing, and that taking a more entrepreneurial path could be an acceptable track to achieving a better life in China. Eventually, this will give the government teeth to actually reform the gaokao-based curriculum and encourage a balanced education system that gives Chinese people the incentives to think outside of the box. This is how to create a healthy economy that depends on and fosters innovation within its people.

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.

Reflecting on Beijing’s Air from #PureMichigan

On Friday, New York Times China correspondent Edward Wong wrote a telling, and frankly chilling, piece about the harsh realities of living in the filth of Beijing’s air pollution.

He is right on. Beijing’s air pollution is one of the most devastating consequences of China’s growth. It is a disgusting, dirty specter that follows you around everywhere you go.Honestly, I never thought in my lifetime I’d have to worry about these things. I moved to Beijing in July 2011, and did not think too much about the pollution until one January morning this year when I looked out my window to find that it looked like I was living in Mordor. I later found out that the air was measured at almost 4 times over what is considered “hazardous.”

After January’s “Airpocalypse,” I consulted a physician that keeps a health blog in Beijing, Myhealthbeijing.com, and here is what he had to say:

As a young American, then, it seems to make sense that the health risks that I face living in the filth of Beijing’s air is not nearly as numerous as for young kids or babies and older people. For me, though, the effects are still deep. As Wong alludes to in his op ed, it really comes down to how the air really enslaves one’s mind as much as one’s body. If I develop lung cancer sometime down the road, will I be able to attribute it directly to the years I spent in Beijing? Probably not. More than just the physical health risks posed by the air pollution is the damage to my overall quality of life and the general way I think and feel every day living in filth and ugliness.

I love the beauty of God’s creation. And I hate that most days, the smog hides all of that. Even though I know that it really doesn’t make much of a difference, I still will put on my “bane-mask” air filtration device to even feel comfortable riding my bike outside. That is not freedom. The air has allowed a little devil to crawl into my head, reminding me everyday of the cloud of carcinogens that is all around me.

They say that what doesn’t kill you makes you stronger. For me, Beijing’s air pollution just grows my appreciation for the home that I love the most, Pure Michigan.

I returned to Michigan last week to spend some time with my family as my grandparents celebrate their 60th wedding anniversary. Sitting here, looking out over the waters of Lake Michigan in South Haven, I’m reminded of the juxtaposition between my two homes that now defines my life. I can’t count how many times over the past few days that I’ve consciously thought to myself “wow, this air is so clean!” or “these flowers smell SOO great!”

Still, for now its merely temporary. Soon, I’ll head back to my home in Beijing where I struggle with the daily decision to either ignore the reality of the black air that surrounds me, or take active steps to manage my life in the interest of my long term health.

At least I know that when I finally decide my journey in China is over, I’ll walk down the road that I’ve been on all the while. The road that leads to God’s country, a place where the beaches are clean and the air is fresh.

The road back to #puremichigan.

The Six-Step Approach For China to Help Rebuild Detroit

Detroit’s announcement of chapter 9 bankruptcy was a difficult but essential step for the city’s resurgence. Now, more than ever, what Detroit needs is belief. Detroiters have to believe that the city will come back; and if new people are going to be attracted to become residents, they’ll have to believe that Detroit is safe, exciting, and profitable.

This type of belief only comes from raising and executing bold ideas. Here’s one: invite China to be a key partner in the revitalization of Detroit. What better statement could be made than to have a city like Detroit, for years mired by resentment of a China that is “stealing our jobs,” finally grow up to strategically engage the world’s second largest economy?

The Washington Post recently published an article outlining six crazy ideas for rebuilding Detroit, so I thought I’d add a twist to that. Below, I propose a six-pronged approach to building the “China Engagement Strategy to Help Rebuild Detroit.” It is a long-term vision, which needs to start with getting people face-to-face, building trust, and ultimately result in real investment and jobs coming into Detroit from this unlikely partner.

1. Pure Michigan in Chinese

Unsurprisingly, Chinese people largely associate the city with the blight, unemployment, and violence that they see on TV. The only way to bring in investment is to get actual people into the city. Investing in a “Pure Michigan in Chinese campaign” will allow Michigan and Detroit to cash in on the growing number of Chinese tourists using their expendable cash to tour America and hopefully change their perception through a direct exchange.

2. Build a strong Sister City Relationship between Detroit and Chongqing

People-to-people exchange needs to increase to build trust. A great platform for this would be bolstering the Sister City relationship between Detroit and Chongqing, which happens to be one of the world’s fastest growing cities

Governor Snyder seems to be ahead of the game on this one as he is planning a stop in Chongqing on his upcoming trade mission. May I suggest he kindly ask Chongqing to write a check to fund a vibrant sister cities program with Detroit?

3. Engage Chinese students in Michigan

Between the University of Michigan and Michigan State University alone there are currently over 5,700 Chinese students going to school in Michigan. While they are pumping in millions of dollars in revenue to the state every year through tuition and fees, that just tips the iceberg. Most of these students would be dying to get job experience during their time in Michigan, even if that required living in Detroit for the summer. These students have the power to change the narrative.

4. Get the EB5 program working in Detroit

Developers around the country have been using the EB5 immigration investment program since 1992 to fund job-creating businesses. Though there are six approved regional centers in Michigan, all with jurisdiction in Detroit, so far, there has not been a successful EB5 case in Detroit, or even in the state of Michigan for that matter. In 2012, over 80% of the visas issued to foreigners thru this program came from China.

5. Detroit Real Estate purchases

Recently, the United States National Association of Realtors noted that Detroit cracked the top 5 most asked about real estate markets from Chinese buyers. Why not use the attention the city is getting now to promote the great properties that already exist? The bankruptcy could indicate to some that now would be the time to buy when prices are at rock bottom in anticipation of a climb.

6. Court China to buy Detroit ‘s assets and invest in companies

China’s government is in a position to make outward investment. They have the world’s largest stockpile of foreign currency reserves, now standing at over $3.44 trillion. China is in the midst of deciding whether or not maintaining such a high number of reserves is literally getting the most bang for its buck, and is making a pivot to make overseas purchases and investments.

What might Detroit have that would be interesting to the Chinese? Of course, as an industrial and manufacturing hub, Detroit has access to infrastructure and technology patents that have continued to grow the presence of Chinese automakers in Detroit. Huge parcels of land are also available at rock bottom prices that are ripe for business development.

If we really believe that Detroit can rise up from rock bottom, it is going to take a few bold ideas like these to make this city tick again. Consider me a believer!

Is the Chinese Dream an EB5 visa? – posted on Caixin Media

I recently re-entered the blogosphere and twittosphere, and the Internet Gods have already been good to me.

I co-wrote a piece with my friend and colleague, Justin Knapp, who shares my passion for Michigan, about the current state of the EB5 Immigration Investment market in China. The article, “Is the Chinese Dream an EB5 Visa?,” was posted last week in China’s largest business and finance online journal, Caixin Online.

You can read the English version by clicking here, 中文点击这里, or read the full text below:

You can read more from Justin and how to live a “Richer, Fuller Life in West Michigan” at Goodallfocus.com.

_______________________________________________________

Is the Chinese Dream an EB-5 Visa?

Both China and the United States would benefit from expanded use of an American immigrant investor program

By Justin Knapp and Dan Redford | June 28, 2013

Dream chasing is a popular topic in China these days. Thomas Friedman sparked the debate last October when he wrote a column titled, China Needs Its Own Dream. More recently, TheEconomist and CNN have also taken a gaze into the crystal ball to interpret China’s dream.

Chinese leader Xi Jinping, has loudly adopted the slogan “Chinese dream” while keeping quiet on the details of what that dream might be. Meanwhile, the American dream continues to be peddled in China’s mainstream culture and media. With foresight, the United States can benefit from this trend.

Today, more Chinese nationals than ever before are trying to live their dreams, not within the borders of China, but by gaining permanent residency status in the United States through investment and job creation. In fact, according to the Hurun Wealth Report 2012, more than 16 percent of China’s millionaires have already emigrated or submitted immigration applications, while 44 percent are planning to do so.

The Immigrant Investor Pilot Program (the EB-5 visa) was created by the Immigration Act of 1990 to stimulate growth by attracting foreign direct investment and creating jobs in America. To qualify for a visa, individuals must invest US$ 1 million or US$ 500,000 in a Target Employment Area which is a rural or high-unemployment area. Additionally, this investment must create and sustain at least 10 jobs on American soil.

Demand for the visa has fueled growth in third-party managed investment vehicles known as Regional Centers which are both privately and publicly run. To illustrate how quickly the EB-5 program has grown in the United States, the number of Regional Centers has increased from around a dozen in 2007 to more than 250 today, including at least one in every state.

While the public profile of the program has been marred by a small number of high-profile, soap-opera-like scams, the difficulties faced by applicants are in fact more mundane: identifying profitable investment projects and creating 10 jobs. After a two-year waiting period, if an investment project fails to create 10 jobs, the foreign investor risks losing their investment and permanent residency in the United States.

Last year, the U.S. Citizenship and Immigration Services hired half a dozen economists to help evaluate the job-production claims, but many believe this added scrutiny has created a bottleneck in the approval process. The Association to Invest in the USA, which advocates on behalf of Regional Centers and industry service providers, recently noted a backlog of nearly 6,000 EB-5 petitions which are currently held up. At the low-end, assuming US$ 500,000 per investment, that’s potential for nearly US$ 3 billion and 60,000 American jobs.

Finding information about the number of deals in the pipeline is challenging. It has been reported that American businesses raised more than US$ 1.8 billion through the program in the fiscal year ended September 30, and over 7,500 would-be immigrants were issued visas. Interestingly, 80 percent of them were Chinese, a dynamic shift from the mere 25 percent just four years prior.

Time will tell how China defines its dream, whether it creates one of its own or simply adopts the American dream along with an American home. For now, Chinese investment in the United States can help boost the economy and put Americans to work. If it can stick to its founding principles and map out a clear long-term vision, the EB-5 program shows promise in helping both Chinese and Americans realize their dreams of successful and healthy local economies.

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China’s Upcoming Privatization Reforms: Daring People to Dream in China

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Is the Chinese Dream an EB-5 Visa?

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