With evidence mounting that China’s billionaires are scrambling to pull their money out of the country, a UK-based tax expert has said the country is paying the price for its “totalitarian” approach. And Bob Lyddon warned the world’s second-largest economy is going into “reverse gear” as Western companies begin to “disinvest”.
Mr Lyddon was commenting at the end of a year in which 13,500 high-net-worth individuals are expected to leave China, according to immigration consultancy Henley & Partners. In the first half of 2023, the country – population 1.4 billion – was hit by a balance of payments shortfall of £15.4 billion ($19.5billion), used by economists to calculate what is known as capital flight – although the figure is likely to be much higher.
Paris-based bank Natixis estimates that even before the pandemic, roughly £118 billion ($150billion) was pulled out of China every year as a result of tourists taking their cash out of the country. Mr Lyddon told Express.co.uk: “Capital flight is an indicator of extreme mistrust in both economic prospects, personal/economic freedom, and protection under the law.
“No-one could surely have deluded themselves that any private person or business enjoys protection under the Chinese legal system, given that China is a totalitarian state. Any liberalisation has existed at the whim of the Communist regime and, as we have seen under Xi, liberalisation can go into reverse gear.”
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That in turn meant personal and economic freedoms were “not guaranteed”, Mr Lyddon, founder of Lyddon Consulting Services, explained.
He said: “You are not free to operate as you please within the confines of the law, and within a framework where new laws would have to be passed through a transparent and democratic process in order to reduce the scope of those freedoms. Current ‘freedoms’ are actually a temporary licence from the regime and one that can be withdrawn without notice and without due process.”
He continued: “Which leaves us with the economic model and its prospects. Firstly, real estate has been a disproportionate contributor to China’s apparent prosperity. Now the bottom has fallen out of that market. Secondly, Western companies that invested heavily in China because it was cheap are discovering that there is such a thing as political risk: legal system risks, ability to transfer money out and so on.”
As a result, they had started to “disinvest”, Mr Lyddon pointed out. He said: “We have there two of the major motors of China’s economic growth since 1990 going into reverse gear, in parallel with de-liberalisation.
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“China is finding out that you cannot have prosperity and a totalitarian political regime. One or the other proves illusory, and breaks down, in the medium term.”
It was happening now because the Chinese regime, led by President Xi Jinping, did not want the “inevitable threat to itself” which derived from economic liberalisation, naming the creation of “alternative seats of power”. Mr Lyddon concluded: “Instead it acts to eliminate the competing seats of power and in doing so faces the breakdown of the false prosperity it created.”
Commenting on its Private Wealth Migration Report 2023, published in June, Henley & Partners CEO Dr Juerg Steffen, said there had been a steady growth in millionaire migration over the last decade, with global figures for 2023 and 2024 expected to be 122,000 and 128,000, respectively.
He added: “In general, wealth migration trends look set to revert to pre-pandemic patterns this year, with Australia reclaiming the top spot for net inflows as it did for five years prior to the Covid outbreak, and China seeing the biggest net outflows as it has each year for the past decade. The notable exceptions are former top wealth magnets, the UK and the US.”
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