Comment: EB5 Implosion

Table of Contents:

  • Chinese EB5 crisis
    • Chinese immigration industry shut down
    • Same pattern as for other industries
  • Impact of crisis
    • Impact on Chinese EB5 industry
    • Effect on the old EB5 ecosystem in USA
  • Postscript: Historical note
    • Two halves of economic growth (1950 to 2020)
    • Demography is destiny
    • Pattern of opening & closing

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Chinese EB5 crisis

  • Chinese immigration industry shut down: We learnt late last week that the Chinese government instructed most players in the Chinese immigration service industry to shut down their advertising and marketing (including their WeChat groups). Over the weekend, many WeChat groups have already shut down. In addition, some players in the Chinese immigration industry have been invited “to drink tea” to ensure compliance with the directive to shut down. 
  • Same pattern as for other industries: The pattern of actions for immigration service providers is similar to that in other areas of the Chinese economy earlier in 2022, such as the technology and film industries - both of these sectors have since shrunk, after the government-ordered changes were implemented.

Impact of crisis

  • Impact on Chinese EB5 industry: Unless there is a dramatic reversal of this policy, this move will demote China from being the #3 EB5 market during the past 5 years to the #4 market globally in 2023, behind Korea, and possibly to the #5 spot, behind Taiwan, in 2024. India (including Indians in the USA) remains the #1 EB5 market for 2023 with approximately 40% global market share, and Vietnam a distant #2 with less than 15% global market share.
  • Effect on the old EB5 ecosystem in USA: RIA has already shaken up what remains of the old EB5 ecosystem of which the Chinese EB5 agent network was a key component. With destruction of their capacity to market and to reach out to their clients by WeChat groups, this is a major blow to the ability of Chinese agents to raise EB5 money, and thus to those in the USA who depend on Chinese agents.

Postscript: Historical note

  • Two halves of economic growth (1950 to 2020): China’s economy grew at the rate of 2% a year from 1950 to 1979 during which Mao’s policies prevented industrialization in China. From 1980 to 2020, China’s economy aggressively industrialized, achieving a growth rate of 8% per year. The average growth rate from 1950 to 2020 was around 5%. Many have predicted that China will overtake the US economy, but that presumes that China will continue to grow at the 8% rate. During their own period of industrialization, NorthWest European countries in the early 1800s and the USA in late 1800s grew at around the same 8% growth rate. Then their growth rate slowed down. It is more reasonable to expect that China's growth rate will follow the same pattern and be closer to the average of major industrial economies rather than 8% and is unlikely to ever overtake the USA economy. See the video below:
  • Demography is destiny: China has a serious problem with demographics–the size of China’s workforce has been declining for the past 6 years and that trend will only get worse in  the decades to come. This is the long term effect of the disastrous one child policy, and the recent reversal of that policy will take many decades to ameliorate the demographic crisis in the Chinese workforce. This will likely result in diminished Chinese growth going forward.
  • Pattern of opening & closing: When one looks at Chinese history across 500 or 1,500 years, one sees that at times China suddenly opens itself up to the world, and at times suddenly closes itself up from the world. These openings and closings are sudden and have a dramatic impact on China internally. China today is a large export economy, like Germany, and it is folly for a seller country to cut itself off from customers. A total cut off from the world economy could result in a 50% reduction in income for Chinese families. In spite of this, China seems to be in the early phases of partially cutting itself off from the world. Let us hope that good sense will prevail in China and that the USA and Chinese economies continue to prosper together.
Please let us know your thoughts by writing to us at editor@ilw.com

Article: Vague and Confusingly Worded by Joseph P. Whalen

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