Banking and Finance

What the Troubled Chinese Stock Market Could Mean for EB-5

 As of late, financial headlines have been dominated by economic turmoil and recent default in Greece. Little attention however has been focused on the sudden financial crisis currently gripping China, the world’s most populous country and second largest economy.

Since mid-June, Chinese company shares on the Shanghai Composite and Shenzhen Composite have plummeted nearly 30% from their highs, amidst considerable concern that the Chinese stock market is in a bubble. According to The Independent, this amounts to a staggering $3.2 trillion dollars erased from the stock market in about four weeks. To put this enormous figure in perspective, the losses seen in the last month are greater than the entire output of the UK economy in 2013, which was only $2.7 trillion.

The fall in prices came after subsequent months of robust growth. Since November 2014, Chinese stocks almost doubled, due largely to small retail investors—“mom and pop” investors purchasing stocks on borrowed money. When stocks began to drop in June, many of these small (and often inexperienced) investors were forced to quickly sell their investments to pay the loans, creating an even larger drop in prices. Worsening investor outlook, as overall Chinese economic growth remains sluggish, could exacerbate this crisis. According to Bloomberg, in April, China’s economy grew at its slowest pace since 2009, and industrial production was lower than all 40 estimates in a Bloomberg News survey. Taken together, these incidents are potentially indicative of a deeply troubled economy.

What does this all mean for EB-5 however? Well, the slowing Chinese economy could have major ramifications. China has been the main catalyst for the program’s growth, accounting for 80% of all petitions. The program is so popular in China that there is an almost 24-month wait to obtain EB-5 visas. Many applicants look to America for the economic security that it offers. If this crisis continues to worsen and investor outlook continues to deteriorate, there will be even greater demand for EB-5 visas, as applicants look for ways to safeguard their assets and provide economic assurance for their families. In addition, it is noted that non-EB-5 investment in the US continues to grow, with Chinese buyers buying up more U.S. homes, for more money, than any other foreign buyers last year, according to a new report released by the National Association of Realtors.

Chinese Home Buyer Preference
12 months ending March 31, 2015

California

35%

Washington

8%

New York

7%

Massachusetts

6%

Illinois

4%

Texas

4%

Florida

3%

Hawaii

3%

New Jersey

3%

Other States

28%

The increase in EB-5 investment will also increase the backlog of applications that the U.S. still has to process, which has already reached close to 13,700 for all countries.

This effect could also spill over to other burgeoning economies in Asia. Kathleen Brooks, a research director for Forex.com wrote, “sentiment could suffer across the Asia region and further afield” if China is unable to stop the losses in its stock market. That could potentially mean greater demand for EB-5 visas from other countries in the region, as applicants look to escape economic insecurity.

References:

Bolton, Doug. "China Stocks: The Financial Crisis That Has Wiped $3 Trillion off the Stock Markets." The Independent. Independent Digital News and Media, 08 July 2015. Web. 08 July 2015.

"China's Economy Slows to Weakest Since 2009 as Output Wanes." Bloomberg Business. Bloomberg L.P., 14 Apr. 2015. Web. 8 July 2015.

Jordan, Miriam. "Fast-Track Green Card Program Swells With New Interest." Wall Street Journal. Dow Jone & Company, Inc., 28 June 2015. Web. 8 July 2015.

La Monica, Paul R. "Greek Crisis Is Nothing Compared to China." CNNMoney. Cable News Network, 06 July 2015. Web. 08 July 2015.

http://www.realtor.org/reports/profile-of-international-home-buying-activity

 Mona Shah is the principal of Mona Shah & Associates in New York City. The firm is an established source for EB-5, having assisted numerous Regional Centers and Investors in navigating this complex, nuanced and constantly changing area of immigration law. Mona has more than 18 years of legal experience in immigration law and extensive knowledge in EB-5 law. Mona's substantial litigation background includes her representation of clients in both state and federal courts. She has handled complex immigration law appeals before the US Circuit Courts of Appeal nationwide.  Before coming to the US, Mona was a Crown Prosecutor in the UK. . Mona is the author of a published book for investors on EB-5 laws and procedures, she has authored and published numerous articles and has spoken extensively both in the US and overseas. Mona was also voted as one of the top 25 EB-5 attorneys in the US, on EB-5 Investors.com two years in a row. Mona is an adjunct professor, teaching EB-5, at Baruch College, part of the City of New York Universities.  

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