Hong Kong is halting its investor immigration scheme that has been responsible for granting residency to more than 20,000 mainland Chinese over the past decade.
The Capital Investment Entrant Scheme, which accepts applications from individuals investing more than HK$10 million ($1.3 million), was suspended last week, just a day after a shock announcement by Hong Kong Chief Executive Leung Chun-ying in his annual policy address. However the Hong Kong government did say it would process all applications made prior to the announced cut-off date.
The Capital Investment Entrant Scheme has attracted several thousand Chinese mainlanders who wish to obtain residency in Hong Kong ever since the scheme was launched in 2003. Reports indicate that about 90 per cent of all approved applications to date have been of Chinese nationals with overseas permanent residence, with Gambia being the top source of applicants under the scheme, followed by Guinea-Bissau, Canada and the Philippines. All these countries have a sizeable population of Chinese citizens with permanent residency.
Applicants are required to invest a minimum of HK$10 million in stocks, bonds or insurance in Hong Kong. Residence permits are then issued to the investor, their spouse and children under the age of 18, with permanent residency being granted after a period of seven years of investing in the financial sector of Hong Kong.
Up until September of 2014, HK$205.8 billion had been invested through the scheme, of which almost 20 per cent was in real estate. Investing in real estate was removed as a requirement from the program in 2010 as home prices surged due to increasing demand from mainland Chinese buyers. Hong Kong has since announced an additional 15 per cent tax on foreign property buyers to further cool the market.
The sudden suspension of the investor immigration scheme sent shockwaves through the immigration and financial industries, as hundreds of investors rushed to file their applications before the scheme was shut down.
Immigration consultants fear the cessation of the scheme and shift in government policy will cause a significant downturn in the immigration and financial industries, and argue that instead of cancelling the scheme, the government should raise the investment quota or place a cap on the number of applications.
Defending the move however, a spokesman for the Hong Kong immigration department said that the decision was made in order to attract more professionals and entrepreneurs.
“In view of the latest economic situation in Hong Kong, attracting capital investment entrants should no longer be our priority,” he said.
Applications already approved or still being processed by the department would not be affected, he added.
According to Chief Executive Leung’s policy announcement, Hong Kong will launch a pilot project aimed at encouraging second or third generation emigrants to return to Hong Kong to work.
A government official said the scheme was targeting children born and brought up abroad, whose parents or grandparents were Hong Kong-born.
“These people are usually born to middle-class families, well-educated and they have a connection to Hong Kong. They can inject new blood into our ageing workforce and even our population,” the official said.
Indicating a shift in policy of placing more value on talent than money, Hong Kong is also set to relax its employment policy in an attempt to attract Chinese professionals to the territory.
Several brokerage firms that offer investment services said that ending the existing scheme would have a detrimental effect on their business, with one trader speculating that the move may have been related to Beijing’s crackdown on corruption and attempt to stem the capital outflow by Chinese trying leaving the country.
The vice-chairman of National Resources Securities, Jojo Choy, said the move may also have been intended to ease the resentment towards the mainland felt by residents of Hong Kong.
Market analysts fear share prices in the region would go down, with the financial sector in Hong Kong feeling the brunt of the impact of the cancellation of the scheme.
Ronald Wan, an equity investor, said, “Immigrants utilizing the investment scheme had largely eyed equity, mutual funds, and bond investments. Many China-invested securities firms and Chinese stock brokers had depended heavily on the fund flows in the scheme. The suspension is expected to impact these brokerages and brokers, as funds for long-term equity investments will decline. Some Hong Kong brokerages could become victims as well.”
Another equity fund manager said that Hong Kong would also have difficulty in attracting talent as its economy was based on the financial, real estate, trade, and retail sectors rather than any new emerging industries.