How Australia is cashing in on China's corruption crackdown

When NSW Deputy Premier Andrew Stoner took a weekend trip to Hong Kong a couple of weeks ago, he managed to come home with a $10 million beef export deal under his belt. But that’s not all.

Stoner also made time for a quick detour across the border into mainland China for another sales pitch: In the southern city of Shenzhen, it wasn’t Australian beef he was selling, but visas.

On August 17, two weeks before it was announced to the Australian press, the Shenzhen Economic News had a big splash, with the headline “Australian state of NSW no longer requires investment in government bonds for Significant Investment Visa”.

The Deputy Premier had announced to his Chinese audience in Shenzhen that his government would scrap the requirement for overseas investors to buy $1.5m out of a total $5m in government ‘Waratah’ bonds, starting in September.

This week, back on home soil, Stoner announced the change and said it was designed to make it easier for Chinese investors, and to give them more choice.

Earlier this year, analysis from the real estate advisory arm of Korda Mentha showed that the scheme brought in at least $440 million to the Australian economy, or around $4 million per day in 2013 (China's Great Wall of visa money, 5 February 2014).

David Chin, managing director of BasisPoint and an SIV expert, says the move means investment providers now have a greater incentive to promote NSW, as the Chinese will now have $5m to invest rather than $3.5m.

“It will provide a level playing field between NSW and other Australian states to attract SIV investors,” he says.

Between November 2012 and the end of May 2014, state governments issued 1,145 invitations, while 928 applications were lodged. Just over 90 per cent of those applications came from China.

The figures also indicate that Victoria has been more proactive in approaching Chinese investors, having sent out almost double the amount of invitations as NSW.

With NSW’s announcement, the competition looks set to heat up now.

Luke Malone, a director at advisory firm Prosperity Advisers, says applicants may start to favour NSW over the other states as funds previously invested in Waratah bonds move to other asset classes.

“Applicants may find higher-yielding investments such as SIV-compliant managed funds or active business investments assets more attractive as a result” he says.

The inter-state competition is unsurprising when you consider the extremely high demand and increasingly tight global supply of premium investor visas in countries such as the US, Canada and Australia.

According to a recent report by Shanghai research firm Hurun, 64 per cent of Chinese people worth more than $US1.6m are either getting out of the country now, or they’re making plans to do so.

The demand is so high that the equivalent program in the US -- known as the EB-5 -- has been tapped out already for this financial year. That means 10,000 people -- 85 per cent of which are Chinese -- have been willing to pony up $US500,000 to move to the US. The annual US quota restarts on 1 October for another 10,000 places.

Canada, which was running the cheapest program, has had to shut it down after being swamped by applicants. 

What is not mentioned in the survey but is undoubtedly a major factor behind the mass exodus of China’s wealthy, is the sweeping crackdown on corruption that has been underway since late 2012.

For many of those corrupt officials and business people, cheaper options with less stringent requirements have started to pop up in cash-strapped European countries.

Spain, Greece and Portugal are now offering citizenship in return for investments into real estate of over €500,000, says Jonathan Sykes, a partner at Premium Finance Group in Beijing.

“Others like Hungary offer almost instant permanent residency in exchange for investments in Government bonds,” he says.

However he also warns these schemes reek of desperation and their long-term viability is unclear.

“We think Chinese investors who go into these schemes tend to be looking for a quick fix rather than a long-term change” he says.

And as premium supply of investor visas continues to tighten, Australia is in a prime spot to profit from wealthy Chinese who are looking for smart investments rather than just a safe haven.