How Will US-China Relations Affect EB-5 Investment? – From APEC to Visa Extension

How Will US-China Relations Affect EB-5 Investment? – From APEC to Visa Extension

 Asia-Pacific Economic Cooperation or APEC has been the talk of the town. Established in 1998, APEC is a premier forum to facilitate the economic growth, cooperation, trade and investment in the Asia-Pacific region. The world’s two biggest economies - United States and China are both members in APEC.

Other than the US and China, 19 other member economies are part of APEC: Australia, Brunei Darussalam, Canada, Chile, Hong Kong (China), Indonesia, Japan, Republic of Korea, Malaysia, Mexico, New Zealand, Papua New Guinea, Peru, The Republic of the Philippines, The Russian Federation, Singapore, Chinese Taipei, Thailand, Vietnam, all of which account for 40 percent of the world's population, 54 percent of its economic output and 44 percent of trade

Since President Obama arrived in Beijing on November 10, 2014. Several encouraging consensus has been reached with regard to reducing tariffs for Chinese electronics products and visa extension. The authors examine how these issues, along with an overall improved climate of cooperation, will affect the EB-5 investment program.

Stronger Economic Ties between US and China

November 10, 2014, the State Department announced that effective from November 12, 2014, the US and China will reciprocally increase the validity of short-term business and tourist visas to 10 years and student and exchange visas to 5 years. Business and tourist visas or the B1/B2 visas will increase in validity from one (1) year to ten (10) years. F1 student visas and F2 dependent visas, M1 vocational students and M2 dependent visas, J1 exchange visitor and J2 dependents visas will increase in validity from one (1) year to five (5) years or the length of their educational program.

US-China relations play an important role in the stability of the global economy. The world’s two largest and most powerful economies have increasingly become codependent of each other. US-China relations was at a low point prior to APEC. The US initiated a 12-nation Trans-Pacific Partnership (TPP)[1] trade agreement forum excluding China and Russia. The TPP is widely viewed as an attempt to balance if not repress China’s rise by establishing a larger US presence in the Pacific region.

The visa extension announced at APEC has undoubtedly elevated US-China relations and is no doubt good news for business and investment. The White House stated in a press release[2] that “This (visa extension) arrangement will improve trade, investment, and business ties by facilitating travel and offering easier access to both economies. The United States hopes to welcome a growing share of eligible Chinese travelers, inject billions into the US economy, and create enough demand to support hundreds of thousands of additional US jobs.”

The Significance of Visa Extension

According to the White House press release, “China is the fastest-growing outbound tourism market in the world, and in 2013, 1.8 million Chinese travelers visited the United States, contributing $21.1 billion to the U.S. economy and supporting more than 109,000 American jobs.”

Chinese travelers consistently rank the United States as their most-desired destination. It is expected that the visa extension program will help the US achieve the goal to have 7.3 million Chinese travelers to visit the United States by 2021, contributing nearly $85 billion a year to the economy and supporting up to 440,000 U.S. jobs.”[3]

“28 % of all foreign students and exchange visitors in the United States originate from China. Chinese students in the United States spent $8 billion in 2013, an increase of nearly 24% over the previous year.”[4]

Increased Demand for EB-5 Visas from China

Business/tourist visas and student visas may enable the applicants to easily visit the United States but if applicants hope to live and work in the United States on these visas, there are considerable restrictions, most importantly, an applicant cannot work for money or earn on a B1/2 visa. The EB-5 Program becomes the best option for applicants who would like to continuously live and work in the US. Despite the prolonged processing time, EB-5 investment is still the fastest employment based route to obtain a US permanent residence for Chinese applicants.  

During the authors’ trips to China, we noticed that the demographics of most EB-5 investors have changed over the past few years. The universal purpose of almost all EB-5 investors from China is for their children’s future. A few years ago, we have seen EB-5 investors have their children pursing higher education in the US. Now more and more investors send their children to pursue secondary and early education.

EB-5 Visas and Chinese Outbound Investment

The visa extension will facilitate Chinese investors to visit and make investments in the US. EB-5 is a perfect option for Chinese investors for the following reasons: Chinese government has been encouraging overseas outbound investment in the past decade. The rise in Chinese investment in the U.S. is no accident. According to the Chinese Ministry of Commerce, in 2002, only $2.7 billion in FDI flowed out of China. But in 2013, China poured $108 billion into direct investments overseas. President Xi addressed the business leaders on APEC that the outbound Chinese investment will total $1.25 trillion[5] over the next 10 years and 500 million Chinese tourists will go abroad to visit.

Why does the Chinese government encourage outbound investments overseas? The answer lies in the fact that this decision is driven by China’s adjustment of the economic growth model. In the past, the overseas opportunities and the Chinese outbound investment was limited to natural resources and building neighboring country infrastructure to stimulate the cross-border trade.[6] The shift in the growth model emphasizes on upgrading Chinese companies’ technology, augmenting management skills, pursuing higher levels of the value chain and gaining global competitiveness. From a macroeconomic perspective, the strengthening of the Chinese currency RMB provides an advantage of outbound investment.

For the wealthy and the elite in China, the reasons to immigrate include educational and employment opportunities for children overseas (78%), preferable climate and greater economic security (73%), and health care and social services (18%).[7]

The greatest obstacle to outbound Chinese FDI is not protectionism or discrimination[8], but the dearth of local knowledge, management skills, and sophistication among Chinese investors. According to the former chairman of the supervisory board of China Investment Corp., China’s sovereign wealth fund, 70% of China’s investment overseas is “unsuccessful.” EB-5 projects provide natural solutions for Chinese investors who lack local knowledge, language and management skills and who are seeking permanent residence through investment. EB-5 investors will have a limited role in the entity they invest in. US developers and managers develop and operate the projects on their behalf.

The Federal Reserve is expected to raise the interest rates by the Spring 2015 to control the rising inflation and over spending, then landing standards will be tighter. The developers will seek alternative financings. The supply and demand relationship will cause an inflow of more capital from foreign capital market. EB-5 financing serves as a valid option for the US developers.

[1] Xi urges Faster APEC Talk on China backed Free Trade Area, Michael Martina, November 11, 2014, Reuters, http://www.reuters.com/article/2014/11/11/us-china-apec-idUSKCN0IV04520141111

[2] Nov. 10, 2014 White House Press Release: FACT SHEET: Supporting American Job Growth And Strengthening Ties By Extending U.S./China Visa Validity for Tourists, Business Travelers, and Students http://www.whitehouse.gov/the-press-office/2014/11/10/fact-sheet-supporting-american-job-growth-and-strengthening-ties-extendi

[3] Id. at paragraph 3

[4] Id. at paragraph 4

[5] Xi Dangles $1.25 trillion as China Counter US Pivot to Asia, Bloomberg News, November 9, 2014 http://www.bloomberg.com/news/2014-11-09/president-xi-says-7-percent-gdp-growth-makes-china-top-performer.html

[6] The Rise in Chinese Overseas Investment and What it Means for American Business, China Business Review, November 7, 2014, http://www.chinabusinessreview.com/the-rise-in-chinese-overseas-investment-and-what-it-means-for-american-businesses/

[7] Half of China’s Millionaires Plan to Leave Country within Five Years, South China Morning Post, http://www.scmp.com/news/china/article/1592975/47-cent-chinese-super-rich-want-leave-country-barclays-survey?page=all

[8] The Coming Deluge: Should the US fear Chinese Investment? Minxin Pei, Fortune Magazine, October 28, 2014 http://fortune.com/2014/10/28/us-china-foreign-investment/

 Mona Shah has over 17 years of legal experience, with more than 13 years concentrated in U.S. immigration and family law and litigation. Mona’s extensive knowledge of all facets of U.S. immigration law, and her practical expertise ranges from specialist business petitions to complicated, multi-issue deportation and removal litigation. Her firm, Mona Shah and Associates, represents individual, high profile and corporate clients from all over the world.

Mona is highly proficient and experienced in EB-5 law and practice, and is the author of a published book for investors on the EB-5 laws and procedures (EB5 for the Chinese Investor, available on Amazon). The second updated edition is scheduled to be published shortly. Mona was voted Top 25 EB-5 Attorneys by eb5investors.com and Top 10 EB-5 Attorneys by eb5info.com. She is also an adjunct professor at the Zicklin School of Business at Baruch University.    

 Yi Song is an attorney at Mona Shah & Associates in New York City. Yi is a dual licensed attorney in the US (New York State) and in People’s Republic of China. Before joining Mona Shah & Associates, she worked at a securities litigation firm in Manhattan. She clerked at China’s highest court – the Supreme Court of People’s Republic of China. At Mona Shah & Associates, Yi practices EB-5 law and securities law and works on many successful EB-5 capital raising projects. She received her LL.B. degree from Beijing Foreign Studies University and she is a graduate from Georgetown University Law Center in Washington, DC. Her articles on EB-5 and securities law are published by LexisNexis, AILA, eb5info.com, eb5investors.com and ILW. Yi serves on the advisory board of eb5investors.com Magazine Chinese Edition and is a speaker on American Immigration Lawyers Association (AILA) EB-5 Conference. She writes a column for the Chinese newspaper Legal Weekly on American law and society. Yi is a native speaker of mandarin Chinese. She speaks fluent English and basic French.

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