Miles Yu examines the large exodus of wealthy Chinese who are working to get their money out of China, revealing why this is happening, where the money is going, and how they are pulling it off. Next, he focuses on the Chinese Communist Party’s flood of money into American colleges and why US universities are still so attractive to Chinese academics. Finally, he closes by explaining how the shadow of past and current doping scandals looms over the Olympic medals earned by China in Paris.
China Insider is a weekly podcast project from Hudson Institute’s China Center, hosted by Miles Yu, who provides weekly news that mainstream American outlets often miss, as well as in-depth commentary and analysis on the China challenge and the free world’s future.
Episode Transcript
This transcription is automatically generated and edited lightly for accuracy. Please excuse any errors.
Miles Yu:
Welcome to China Insider, a podcast from the Hudson Institute's China Center. I am Miles Yu, senior fellow and director of the China Center. Join me each week for our analysis of the major events concerning China, China threat, and their implications to the US and beyond.
Phil Hegseth:
It is Tuesday, August 20th, and we've got three topics for Miles. First, we examine the large exodus of wealthy Chinese who are working to get their money out of China. Miles analyzes why the fearful moves are happening, where this money is going, and how people are pulling it off. Next, we stay on the topic of Chinese money, but hone in on the CCPs influx of money into American colleges. We explore why the US universities are still so attractive to Chinese academics and why CCP influence in the American academic system is such a dangerous national security threat. Finally, we close with a reflective moment on the Chinese accomplishments in the Paris Olympic Games, but detail how the shadow of past and current doping scandals looms over the medals earned.
Okay, good to see you again Miles.
Miles Yu:
Good to see you again, Phil.
Phil Hegseth:
We're going to jump right in per usual. So our first story is about Chinese millionaires and why they are fleeing the mainland. Miles, can you give us just an introduction into what is causing this exodus of wealthy individuals from China?
Miles Yu:
Well, there are the long-term causes. There are short-term causes. The long-term cause is obviously this great escape is a result of this fundamental clash of two systems, capitalist system and the communist system. So because of China's connection with the global free trade system. So part of the population in China could really get rich and they have gotten rich in spite of the Chinese communist party, not because of the communist party. So once you have wealth in China and then that wealth really cannot really exist peacefully within the communist system. So the first thing after you make money in China is to get out. So that's basically a systemic reason why there has always been a capital flight, as we call it. And there's nothing right now, nothing like right now, all of a sudden there's a problem. I mean, that's one reason why China has one of the world’s strictest rules of capital exit control.
They really, really have these very stringent measures to restrict money flowing out. China right now, the official policy has always been that each individual can only take $50,000 each year out of China. That's the maximum. So if you want to buy a house, say it costs $500,000 somewhere, it'll take years, years to get down. So that's why when there is opportunity, all kind of ingenious ways were created to get money out of China, that's one of the most important things to have. I mean, for example, the last wave of capital flight took place in 2015 and 2016. That's when the Chinese government devaluated its currency, the Yuan, and the people just freaked out because that means their money inside China would be worth less. So you have a hundreds of billions of dollars flying out of China. So currently of course there's another wave. It has something to do with the worsening of Chinese economy and the upcoming global elections in the United States in particular. So that's why there is a panic almost. You see this current exodus of wealthy Chinese to the west, the United States and Japan in particular.
Phil Hegseth:
And I want to get to why them in particular, but first you said people are making money, but they aren't able to keep their money in peace. Is it mainly because of volatility of markets or is there something that the Party is doing to make sure that people don't have full control over their money or what's the story there?
Miles Yu:
I just laid out on the underlying condition for China to get out of it. Everybody wants to go. But also, there is this, you also asked about the immediate causes of the current panic. It has something to do with Xi Jinping’s policies. Recently, Xi Jinping since last year started talking about redistribution of wealth, what you call the 共同富裕. That means common prosperity. The whole government right now is clamping down on private enterprises, and non-state enterprise companies, and also, they try to get all sorts of ways to extract the money from wealthy individuals. The local government is broke right now. So that's why if you have money inside China, even the middle class feel very unsafe, and they want to get out of there. In the old days, in the eighties it was to the party slogan is to be rich is glorious. Now today, 2024, the proper way to describe the wealthy people in China is ‘to be rich is glorious and dangerous.’ That's why the government wants to get out. The fundamental problem is that China does not have constitutionally guaranteed property rights. It's a communist country. There is a theoretical denial of all kinds of private ownership. That's why people feel unsafe. It's based upon the whims of the party leadership and the communist party. Whenever the government is broke, they go after the people at the bottom in the middle. Capital flight has become China's national pastime.
And in particular you have this collapsed real estate in the past. If you have money in China, you invest in two things. One is the stock market, but most of them, about 80% of the family savings were put into real estate in China because that's kind of a positive scheme people are living on, getting excited about, addicted to. Now China's real estate has collapsed almost completely. So wealthy people like to invest something with whatever they have left in real estate. That still is good. I mean you can see real estate in Tokyo, in Los Angeles, in San Francisco, in New York. They're very good, therefore they like to get the money out of China and go to those places.
Phil Hegseth:
You mentioned the US and Japan in particular. Is that the reason why or is there more here? I can probably guess a little bit, but why those places in particular?
Miles Yu:
Well, I think real estate is very stable in those places and real estate because of a high interest rate, the real estate market has slowed down in the United States. So, there's a bigger inventory and people from China basically, they don't really go to the bank for money. They have cash, so they buy it. And in places like Japan, the Japanese yen right now has devalued quite a bit. So, things are pretty cheap. So that's why if you go to Tokyo today, today, you will see a lot of Chinese, not necessarily super rich, but middle class and they bought a lot of real properties in Tokyo and the suburbs of Tokyo because they're really cheap compared to many places in China like Shanghai and Beijing. So, you see a lot of Chinese over there. I think the number, I think about 50% of the new immigrants in Japan are from China.
Another reason in Japan in particular is because Japan has this terrible aging problem. So, they have a labor shortage. So, in the last five, six years, Japan has, well, Japan is notorious for its strict immigration policy, but they have relaxed a lot of immigration policy to attract foreign laborers. And this is the one reason why a lot of Chinese go to Japan and with relative ease in recent years and United States of course. But there's also a fundamental reason though, much bigger reason that is if you have money in China, not much just the middle class, in Shanghai, you have children, you don't want your children. This object to communism, stringent indoctrination, all those nonsenses that's going on by the propaganda machine. So, you want to charge children have a really good education and this is one of the most important motivations for Chinese families, middle income families, and the middle class and wealthy people to send our children abroad.
What do we tend to the best education system is in the United States, despite all those flaws that people are talking about, how bad we are, but still, it’s some kind of the ideal destination for education. But then go even deeper. If you are a wealthy person in China, you are still living in a very precarious political situation, life without dignity. That's what happened. You have fear and lack of basic human rights and freedom I think is the ultimate reason for people with decent wherewithal to get out of China. And so, the US is always the beacon of freedom and democracy. So that's why United States has always been the top destination for the Chinese people, rich and poor. Japan is second because Japan has particular appeal, [inaudible] is very safe in Japan. It has a very good social welfare system. So, there you go. I mean that's been the recent great escape from China.
Phil Hegseth:
How are they doing it? You talk about the CCP has a limitation on money that can go out. There's no way they want all this money in investment going to Japan and going to the US. Chinese and Japanese relations are tense. And so, you see all this immigration over there. How are they getting around the government and pulling this off without retribution?
Miles Yu:
They have all kinds of illicit ways, legal or illegal. So last year there were close to 14,000 what the professional called high net worth individuals, the HNWIs, they left China. Most of them came to the United States and Canada. And so how do you get out? Well, many of the people who have money, they're actually illicit money, the minor officials and they have ways they can basically, that's why bribery corruption is rampant in China, you can always get away. There are other ways to do, I mean I know a guy who, I heard of the guy, I don't know this gentleman, and he started the company in the United States. He would go to court to have some kind of lawsuit, and he would manage to lose the case because the case is bound to lose. And then the court imposed huge fine on him, and he basically used the money from his home company back in China to pay the fine.
That's how you transfer money. Of course, the numbers can be a little bit different. He might say, hey listen, even though I'm fined like $2 million, he said I'm fined $5 million. So, then the next extra difference $3 million he would legally get out of China. There are all sorts of ways over there. And also, some countries like Singapore have very close ties with the Chinese government. So, there are funds [inaudible] for example. A lot of illicit money would go there. I mean they can eagerly do it. And with this sort of electronic transfer payment system right now, you can basically transfer some money using credit cards, and even Alipay to transfer money gradually. There are many ways to do so. Specifically, I don't know, I think US Treasury probably knows a lot about.
Phil Hegseth:
Well, I'm sure it's a mixture of all those things and they're getting more and more creative. But moving on, we're going to stay on the topic of Chinese money going international, but now a little bit more focused specifically CCP money into American college campuses. This is a topic that has been around for a while. I think we've touched on the show a few times, but Miles, why are US college and universities so attractive to Chinese students and the CCP in general? Why do they care about it so much? I mean, you previewed it a little bit that it still kind of has this allure, but what's behind it on your end?
Miles Yu:
Well, there is of course the American college, university system is the envy of the world. People want VIR on top of that. This also is related to a grand strategy of the Chinese Communist Party from way back. So Chinese communist system cannot produce top-notch university and colleges because it lacks academic freedom. And academic freedom is a bedrock for innovation and creativity. That's why the US system is such a good education system. The Chinese government knows this. In order to modernize the communist system, they need talented people trained. They cannot be trained inside in the Chinese system. So, from the late 1970s, the Chinese Communist Party has carried out the strategy that is to outsource higher education to the United States, to let the US universities, the best in the world to train engineers for the Chinese system. That's why China has carried out this very ambitious program between 1978 and 2019 over the 40-year span, China has sent to United States, to American university campuses, over 6.5 million Chinese students.
And those students are trained. In 2020, the Chinese Ministry of Education did a survey. They concluded close to 90% of the students trained by universities and campus in the United States return to China. The actual percentage is about 86%. After graduating from US campuses and universities, they went back. It is this large number of American trained engineers, mathematicians, chemical engineers, and all the sort of talented people that are running the Chinese Communist state machine. And this is basically the Chinese strategy. If you go to China right now in all the key industries, key technological areas, the leading figures are almost without any question graduate from the US University colleges as we speak today, 2024, there were over 300,000 Chinese students studying on American campuses today, 2024. That comes from about 35 to 40% of the entire student body––international student body in the United States is pretty telling.
So, part of this is a Chinese grant strategy. Now if you say, well, other countries have sent students to United States too, India is a close second. They have sent millions of students to the United States over the years, but only 20% of the Indian students studying in the United States have returned to India. Most have been stayed in the United States. And that's why you go to Silicon Valley. Many of industry leaders were Indians, not Chinese, because the best of the Chinese students, they have gone home to serve the communist country. Now Senator Cotton's letter to the Department of Justice to investigate Chinese money on American campuses because in order to accommodate this huge number of students body in the United States, China needs cooperation from the campuses, from the universities and to grease some of the procedures, to issue visas, to issue invitations, to admit more of them.
And in many cases, they try to corrupt American institutions to allow China's influence campaigns to operate on the campuses like the Confucius Institute, for example, to allow Chinese consulate officials to influence Chinese student bodies on campuses. And that's why a huge amount of money from corruption has gone to US university campuses. Many in many cases, there were unreported during the Trump administration. The Trump Department of Education has discovered over $1.3 billion of Chinese money, with the universities unreported as required by law. And some of the universities like Stanford University was funded reg violation of this reporting process. That's why Stanford University was fined over $1.5 million for that kind of misdeed. Georgia Tech was the same thing. Harvard MIT don't have this problem. So Chinese money is rampant, they're corrupting, and this has to stop.
Phil Hegseth:
What does China do differently for your example with India to retain such a high percentage of their students to come back? How do they prevent their students from the poisoning of academic free thought while they're here?
Miles Yu:
Not everyone is allowed to go abroad in China because China has this exit control. They can decide who should get a passport or not. Even if you have a passport, you have a US visa. China has this thing called an exit visa, so they can still deny you going aboard. So, you already have been subjected to the control of the Chinese Communist Party, and make sure that you have some liability inside China. Your parents.
Phil Hegseth:
So, they're kind of filtering for loyalty on the front end?
Miles Yu:
Oh yeah, yeah, that's right. And many of the students were sent to the United States already have some kind of government connections. For example, the so-called Seven Sons of National Defense Institutions. They're related to so-called Project 985, and they were pre-filtered by the government for their eligibility to go abroad. But to answer your question directly, once those Chinese students come to the United States, to American campuses, the land are free. They are subject to stringent Chinese government control. One of the most effective ones is called the CSSA. The Chinese Student Scholars Associations. There are over 200 of them across America on American universities and campuses. Those CSSA, almost all of them are under control by the education divisions of Chinese consulates across the United States. For example, university of Maryland, CSSA is being exposed as controlled by the Chinese consulate Confucius Institutes. They were all across American campuses until just recently.
Professors, American professors must abide by Chinese law, including speech codes. There is a Southwest Chinese Student and Scholars Association. Yes, there is a Southwest Students and Scholars Association and that basically cover these dozens of schools in the southwestern United States, including Los Angeles area, including Arizona, New Mexico. And in their charter, it says, this organization is funded by the Chinese counselor in LA. And its contact information is listed as that of the Chinese consulate in Los Angeles, which is just amazing. And of course, in this most critical area where there are some kind of very sensitive American research labs. You have the very strong Chinese students and Scholars Association. Very odd. One example is the University of Tennessee in Knoxville. Knoxville is right next to Oak Ridge National Lab. That's where Americans and nuclear bonds were made, right. So, you got this huge CSS says in University of Tennessee in Knoxville, in its charter it is openly stated, this chapter of Chinese students and Scholars Association at the University of Tennessee in Knoxville accepts the leadership and guidance of the Chinese embassy in Washington DC.
And it also says that it was funded, it is funded by the Chinese embassy. And it also, it says that you must support the One China principle. You must not support Taiwanese independence. And the most importantly, even if you have joined as an American citizen and you are still, if you love China and you'll be a member of this organization, and you must abide by the Chinese law. This is, it is Tennessee, it's absolutely bizarre. So, it's the organization of coercion and they report on people with different thoughts to the Chinese embassy. So that kind of all kinds of things. Of course there's also active recruitment on the American campuses. This is something called the Thousand Talents program. And so that's just very important because China also controls all research opportunities in China, if you're a scholar, if you're a professor, you want to get tenure, you need to do some kind of research that can only be done in China.
You have to Chinese condition to do our research. And we talk about the Wuhan Institute of Virology, right? That's conducted some very sensitive research. At least a six American university and research labs have the joint projects with the Wuhan Institute of Biology. And so, it's the target American academics in China and across them into committing treason. I'm talking about tourism. There's one fellow several years ago called Glenn Duffie Shriver. He was a student in Shanghai in 2004. He was paid $70,000 by Chinese government for what the PRC refers to as a friendship but was really information Shriver procured during his time working as a US foreign service officer within the State Department state. This is just absolutely crazy. So, we have the FBI saying Chinese academic espionage is estimated to cost America $225 to $650 billion every year. That's the American government estimate. You think about this, that's why this is a very serious issue. Congress must take action to stop this very dangerous commitment of academic change with China.
Phil Hegseth:
Yeah, that's a scary one. So, we'll move on to our final topic. Sadly, the Olympics are over, so there's nothing on TV anymore. But in reflection of it, miles, they tied the US in gold counts. So, each had 40 gold. The US had 126 medals. China came in second with 91, but we covered a little bit of their doping and cheating and scandals in the past. How did it overshadow the medal count this year and did it impact any events in particular?
Miles Yu:
Well, let me first say congratulations to China for winning these many medals. Even though I don't feel particularly proud of China, but I feel very proud about the individual athletes. They did great. Basically, as a result of the state system that supports and screens hundreds of thousands of people from childhood downward that go to the national team to train. Nevertheless, it is an amazing human accomplishment.
Phil Hegseth:
Of course.
Miles Yu:
Yeah. Secondly, because of state policies, there is always this shadow sort of haunting the Chinese athletes, no matter how of a great accomplishment individually they have reached, there's always this association with the lousy government that carries out all kinds of policies, one of which obviously is doping. Doping in a country like China is rarely an individual effort. It's related to state government policy, which really brings me back to the two major dividends of the end of the Cold War and the collapse of the Soviet Union. China benefits from the collapse of Soviet Union in many ways, [inaudible] of them is very important. One is China benefit from Ukraine. Ukraine becoming independent. Ukraine had enormous amount of Russian made modern weapons. So, over the decades since the collapse of Soviet Union, since the Ukrainian independence in 1991, Ukrainians alone were largely responsible for the modernization of Chinese weapons systems.
Ukraine sold China at a fractional price of Russia, would've charged to China basically all the major platforms of weapons from aircraft carrier to landing craft to missile system, to heavy bomber engines. Even today used to have a lot of Ukrainians weapons expert in working in China. The second dividend China has gotten from the collapsed Soviet Union was East Germany swimming coaches. East Germany was the most notorious doping kingdom during the Cold War. East German coaches went to China after the Soviet Union collapsed and they basically told the Chinese how to dope. Now, this Chinese doping project started from the early 1980s when China began to return to the international sports arena, particularly the Olympics in the 1990s. In the 1990s, the Chinese doping scandals accounted for more than half of a global doping incident. And that's pretty amazing. So, between 1990 and 1998, there were a total 28 Chinese swimmers who tested positive during international competitions, including the Olympics. In 1994, there is the massive Chinese doping incidents related to performance enhancing drugs.
In 1994 in Hiroshima, Asian games, seven Chinese swimmers tested positive for illegal drugs. And so, it really, really is amazing. In 1994, China was forced to adopt a sort of regulation announcing the prohibition of using, of performing hunting drugs. And last year China also adopted some kind of national law adding a criminal punishment to that. But that's basically a shifting of responsibility as if all those doping incidents were done by individuals, not by the state sponsored policy or action. It is just not very convincing. In 2016, in the Rio Olympics, in a hundred-meter butterfly swimming final, the Chinese swimmer, the lady had one gold, but then she was found immediately of using illegal drugs. His gold was basically taken away.
I'm sorry, it's not gold. She ranked number four. She didn't get medal, but she was fond of using drugs and she was a banned from swimming for a couple of years. And of course, one of the notorious cases was China's a star man, swimmer, the guy by the name of Sun Yang. And in 2018 he was found out using drugs. And so, he was imposed eight-year ban from a competition. But then later on the sentence was reduced. But nevertheless, this is still a huge scandal. In the case that we talked about a couple weeks ago when Olympics just started in Paris, there were 23 Chinese swimmers using illegal drugs and they were fund in violation of the law, but then WAPA allowed them to perform in the Tokyo Olympics. Not all of them, but about one third of the Chinese national team were on the list of illegally using drugs. And this was a national scandal. China has not really officially reconciled with the international sports community. That's one reason why the Chinese swimming teams, even though they have achieved remarkable events in Paris, but they were looked with a suspicion because once the nation has lost trust and credibility and everybody suffers.
Phil Hegseth:
Yeah. To clarify, 11 of the 23 swimmers who failed the doping test in 2021 were set to compete in Paris. Yeah. That's wild. Well, thank you Miles. On that note, we will wrap up. I appreciate your analysis as always, and we will see you next week.
Miles Yu:
Thank you very much, Phil, and I’ll see you next week.
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