China forecast to see highest net loss of millionaires in 2022 after Russia

Murray Sarelius, Partner and National Head of People Services at KPMG China

China is forecast to suffer a net loss of 10,000 US dollar millionaires in 2022, and Hong Kong is predicted to lose 3,000 more high-net-worth individuals (HNWIs), according to the Henley Global Citizens Report, which tracks private wealth and investment migration trends globally.

As expected, Russia has experienced the biggest exodus of millionaires over the past six months, with forecast net outflows of 15,000 by the end of 2022 — a massive 15% of its high-net-worth individuals (HNWIs) population and 9,500 more than in 2019, pre-pandemic.

How does China HNWI growth rate rank globally?

The Q2 report released by international residence and citizenship by investment advisory firm Henley & Partners reveals that the number of Chinese US dollar millionaires and billionaires will grow by 60% over the next 10 years compared to just 20% in the US and 10% in France, Germany, Italy, and the UK. Russia is expected to increase its number by 30% by 2031.

The latest projected net inflows and outflows of US dollar millionaires (namely, the difference between the number of high-net-worth individuals who relocate to and the number who emigrate from a country) forecast by New World Wealth and featured on the Henley Private Wealth Migration Dashboard show that emerging and developed economies in Asia are rapidly catching up with traditional high-income markets when it comes to generating private wealth.

Andrew Amoils, Head of Research at New World Wealth, says China’s projected net loss of approximately 10,000 HNWIs in 2022 equates to only around 1% of its HNWI population. “General wealth growth in the country has been slowing over the past few years.”

“As such, recent outflows of HNWIs may be more damaging than in the past. In particular, the banning of Huawei 5G by several major markets such as Australia, the UK, and the USA was a big setback for China. Huawei was the crown jewel of its hi-tech sector and may well have emerged as the world’s biggest tech company if not for the global interference. China’s deteriorating relationships with Australia and the US are also a major long-term concern.”

What is the state of investment migration in China?

There has been a marked rebound in the investment migration market in China and Hong Kong since the beginning of 2022, with a sharp pick-up in the number of enquiries Henley & Partners received from the East Asia. 57% were from China, then Hong Kong and Japan.

Denise Ng, Director of Henley & Partners Hong Kong and Head of North Asia, says it’s been a difficult time for China with massive outbreaks of the Covid-19 pandemic afflicting many major cities over the past few months, accompanied by strict restrictions. “After two years of pandemic, many European and Asian countries have been opening up and lifting Covid restrictions, but we have seen the opposite in China and Hong Kong,” Denise commented.

“All of these developments, coupled with the war in Ukraine, have made many wealthy individuals seriously consider the need to seek alternative residence and citizenship as a way to reduce the risks they are exposed to. There was an 18% increase in the number of web enquiries that Henley & Partners received in Q1 compared with the same period in 2021.”

“Last year, enquiries were subdued due to the pandemic but based on what we have seen in the first months of this year we expect the number of enquiries in 2022 to be similar to in 2019 –– our peak year for enquiries in North Asia,” Denise Ng further commented.

The Henley Private Wealth Migration Dashboard forecasts Hong Kong’s net loss of millionaires for 2022 will be 3,000. Amoils says this outflow is “ linked to the recent Hong Kong protests, which have certainly damaged the Special Administrative Region’s long-term appeal. But, Hong Kong remains one of Asia’s wealthiest cities with over 140,000 resident HNWIs.”

What are the tax implications of alternative residence?

Murray Sarelius, a Partner and National Head of People Services at KPMG China, says it’s vital to weigh up the key tax considerations when acquiring citizenship of a new jurisdiction.

“The report shows that affluent investors from mainland China and Hong Kong have been migrating. People from Hong Kong may be used to the benign tax system there and need to be prepared for the complexity tax can bring. In addition to anticipating the requirements of their destination tax systems, investors migrating from mainland China need to address the implications in mainland China and what obligations they continue to have there,” Murray said.

His colleague who is also a Partner at KPMG China, Michelle Zhou, agrees and adds that “Taxes are rarely simple, and each additional jurisdiction with which your tax affairs come into contact increases their complexity. If tax residence is to be established by participating in a citizenship by investment program, investors should implement plans to mitigate the impact of taxes on their offshore investments before taking any action that triggers tax residence.”

“Failure to manage your tax residence can expose your worldwide income to additional taxes, including profits or dividends from businesses operated abroad,” Michelle concluded.