 Good afternoon. My name is Ray Tsuchiyama. I'm your co-host today on Asian Review entitled Exodus from China. We're going to dive into that topic with my co-host Russell Liu to my left. We're going to be looking at this whole world of investors in China looking for ways to invest their RMMB, their UN, money outside of China and within China options for them. As we know since the start of the year 2016 the UN has declined in value to the US dollar starting out probably around slightly over six UN to a dollar now approaching 6.9, maybe breaking the 7.0 mark by the end of this month with the outflows of the RMB happening as we speak and that's going to be impacting economies, countries, all over the world. And so we have Russell Liu to my left and why is this happening Russell? What's the beginnings of this and tell me the profile of the type of investor that's searching for ways to invest his hard-earned RMB not in China but possibly outside? What kind of profile would you say would be that investor type? Sure, Ray. And I'm glad to be back here a couple weeks ago. I was in Beijing as you know and when the first thing I did was I went to the bank. I started changing my RMMB, my UN, $2, you know. As a foreigner in China, you only can change $500 a day but in China you've learned to work around the rules so I'd simply get one of my students I teach at a law school to go there and I said here I pulled out from the 18,000,000 RMB. Now you can go to the bank here and change it to US dollars. There's no limit up for that. Oh, as a Chinese citizen. As a Chinese citizen. So you know it's happening to everyone in China not just the expats who have RMB accounts to change the dollars as well as the Chinese citizens. I think this topic is is relevant because it creates a lot of opportunities in the US if you're the smart businessman, smart lawyer. It presents an opportunity and I'll talk about that. Now going back to the economy of China. You've been there throughout this year. How is it doing? I mean it's although the currency has been devalued. Exports are doing well. I mean this consumer economy doing well. Any bright spots? Any any places that are challenging for the for the government looking looking at economy today? Well, I think I think there's a lot of challenges for the government because a couple years ago this is not as though that the economy is crashing today. This is something that was foreseen years ago. And one of the things that changed was that creating a middle class. So they came up with certain laws that regulate labor and labor costs as a result rose. So the biggest thing that China reason why it developed so quickly over the last 30 years because of foreign direct investment. Foreigners like US companies, Japanese companies, all came into China and built factories, created jobs, all the manufacturers done in China and all these exports went out and the money stayed in China. So that was the situation if you look 20, 30 years ago. It was a foreign investment type of moneymaker for China. But China realized that at some point they can't live on that forever. As a result of that that's why China had a GDP that was double digits. It was just too hard to handle. So the strategic shift was made in China saying we want to close down these garage floor factories. We want to move up the supply chain, the value chain. We want high tech. It comes with this also with the policies that we want to encourage more domestic spending. But the domestic spending has been actually Chinese money to go outside and spend, not domestic spending in China. Well, let's hold it for a moment because you're touching on a whole history of China's economy and I remember back in the 80s books like Beijing Jeep. Remember that joint venture? One of the earliest to really go in and manufacture a Jeep, Chrysler Jeep in China. And then comes a flood of other types of joint ventures, other car manufacturing, all kinds of white goods and so forth. And at the same time people began to get money and did buy Chinese kind of things, retail object for their house, air conditioners, refrigerators and so forth. And so we have how many people in China? A billion people? 1.3 billion. 1.3 billion. All right. 1.3 billion. Out of that today, what would the number be to be middle-class? 300 million? 200 million? Maybe 300 million. So there's 300 million people that have risen during this 30 years to a middle-class status. With some money in the savings accounts, they got an apartment, a car, a refrigerator, things like that. And compared to speaking, the entire population of Japan is 125 million. The whole entire population in the United States is 360 million. So we're talking to big numbers now. But going back to what you just said, why aren't the Chinese just buying things in China? I mean, and then not looking abroad. Why aren't they satisfied with what they have today in buying, going to Wang Fujin, the apartment stores or in Nanjing Lou in Shanghai, and buying and being very happy with that? Isn't that okay? Right. That's a very good question. And one of the things in a foreign investment economy where money was coming in from outside of China, foreign companies setting up, and it was export-driven, one of the things you've got to realize is that there were controls, a regulation so that the goods cannot be sold domestically and the goods were sent out export. And so what happens is that typically, if you're in China, you know that the better shirts are made in China, but they're sent out. You can't buy a domestic market. You may go to silk market, one of these places that get a copycat. It's not the same quality. So what happened is that if they would, if they could find good clothing, all these things are made in China, there was a higher tax. So because of tax, this is how the government regulated so that their citizens couldn't buy it. So what happens is that when the right to travel broad opened up and China soft power, we want our citizens to go abroad. They have money. People would save up the money and typically go across the U.S., come out to the U.S., buy a big luggage roller and they go to the outlets and stores and buy things toward that and take that back to China. And so that's typical for the Chinese traveler. Which is good for the United States economy. They're bringing back dollars in a sense to spend in the U.S. and make the retail merchants happy in a sense that they're buying something in the United States and then bringing them back and showing it to their family and friends. And of course that entices more people to travel to the U.S. and other places to buy consumer goods. I guess clothing or electronic goods and so forth. But the U.S. is not the only place they're going. They're going to Hong Kong, Korea, Japan, Thailand, Singapore also. Yes. And Europe also. They're big spenders in Europe. But now with terrorism, they don't go there as much. But I think another thing we have to realize is that the day would come and I think China knew it, where foreign investment would slowly and change course. And what happened was that, keep in mind in 2004, WTO forced China to open its markets. And so one of the things that was done was that the Chinese allowed foreign companies to come in. They're called Woofies or wholly old foreign companies or actually Chinese companies, but they're 100% owned by foreigners. And so when they had control of the foreigners and the Woofies, they could make that management decision. Are we going to be in China or not over time? Things have changed. Now previously it was a joint venture. So you would have a Chinese partner could block you. You had to keep your money China. But now, unless you're a proctogamal, P&G, the big companies, most of the, a lot of companies are moving out to Southeast Asia because of higher labor cost. Regulation has changed. And one of the other policies that we got to keep in mind was that in 2000, China came up with this policy called the Going Out Policy. It encouraged large state owned enterprises and now also private companies to go out, create companies outside in the marketplace, realizing that someday to be a strong country, you need strong multinational companies. You need P&G, a Chinese P&G. You need a Chinese Coca-Cola. That's the phenomenon that made America great, was the multinational companies. So they realized that policy was enacting 2000. And about four years ago, they made it a lot easier. They lifted currency restrictions for Chinese companies to go abroad and invest, money, acquire companies around the world by technology, by brands, and so forth. So that opened up. But what happened fast forward from four or five years ago to today, today, is that the Chinese still haven't really made it successfully, but their companies did go abroad and invest and successfully be in the U.S. marketplace. And so a lot of people, there's a number of factors, a lot of people have got their own companies and they're taking their money out. They're exchanging it because the remedy is going south. So that's what China is concerned about. And even it's ordinary citizens, the middle class, they're finding ways to get their money out. That's what we're going to talk about today. It's Murphy. Well, which leads to an interesting phenomenon, like you just said. Here you have a subset of the 300 million middle class, right? Not everybody's going to do this, but there's a subset of them that's looking abroad. And one of the things that they're looking for themselves, and this is quite a phenomenon within China, is to internationalize their children. So they're looking for a way to hang on to their new wealth, but to diversify, to have a series of steps so that they have some kind of presence outside of China. Now, if you were in their shoes, where does it start? Do they see or add some place? Do they travel first and talk to people or they explore things on the Internet? How do they make a series of decisions so that they take a trip outside with the objective of investment? Well, I think that's actually a very question with a lot of complicated answers. And you have to look at several different experts. You've got to look from a macro point of view, what's causing it? Why are they doing it? And you know why they're doing it? It's because of this. Number one, in China, if you have extra money, you put in the bank, you're not going to really gain no interest. Second, and there's restrictions on buying second property. A couple of years ago, when it was easier to buy a second property, and if you're in big city in Beijing, where the property value will go up, you bought a second property, but then there became restrictions on it. So what people were doing, they're getting divorced. They can buy a second property, you buy that property, I buy that property. But the government wants to adapt speculation, right? They don't want speculation. So where do you take your money? And there's another factor that's important, and it's this. China's education system, they realize, if they internet now, they see everything what's going on outside. They realize that innovation requires creativity, it requires a different kind of education. I teach in the Chinese educational system, and many of the teachers are pure academic. They've never been in the business world, and you have to memorize. Students have to memorize. It's wrote. It's an Asian thing. It's not that unusual. It's not unusual. It's not like Japan, South Korea, Taiwan, Singapore. Korea and Japan follow the Confucian system, the national exam. And the way that originally it was in the old days and the emperor days, the only kids that got a real education were those that could memorize poems and write. Well, the kids in the fields, the masses, had no time. They're too tired. So that kept them out of the elite class. And so roll forward in contemporary days today. So you still have the same education system. So parents are saying now, we want our children to go and get education outside of China. And what they found was that English is the language of business. The government 40 years ago required all students from first grade on to learn English. So now they realized English is important. That's the language of business. And the difference between Beijing and Tokyo is when you're in the subway and the banks, you'll hear everything in English and Chinese. And if you go to Japan, you only hear Japanese. And we'll go back to explore this internalization of children and going forward in education when we take this break. Globalization. Aloha Kako. I'm Marcia Joyner, inviting you to navigate the journey with us. We are here every Wednesday morning at 11 a.m. And we really want you to be with us where we look at the options and choices of end of life care. Aloha. Aloha. My name is Carl Kampania. I am the host of Think Tech Hawaii's Education Movers, Shakers and Reformers. We hope you join us every Wednesday at noon right here at Think Tech Hawaii, as well as on OC16. Our show covers a range of important topics regarding education, our educational system, where we are, where we're going, where we need to go, and some of the important people that are working on that from state legislators to department heads to teachers and students. We bring in everyone we possibly can to have a comprehensive conversation about the educational system here in Hawaii. So we hope you join us again every Wednesday at noon here on Think Tech Hawaii. Mahalo. Welcome back to a heated discussion and exploration, Asia in review with myself, Ray Tsuchiyama, and my co-host, Russell Liu. And we were just diving even further into the role of education in China and how the government policy on English emphasis really paid out through the years to produce international minded citizens who could go out and sell and market and so forth. And we also talked about the tradition of Confucianism, how that really restricted a lot of thinking, and also it barred young people in the rural areas for really joining the Mandarin class or the intellectual class, very similar to Japan and South Korea and other countries. And then we also have an area which China will come to grips with very quickly. And even today, what Japan has been in South Korea and Taiwan and other countries of the Confucian world have been trying to come to grips with, which is innovation and creativity. And this is a very, very complex topic because I was in a meeting with, at that time, about 15 years ago when I worked for MIT, with the chairperson of K-Dandan, which is the top business association in Japan. And Dr. Toyoda, who was the chairperson of Toyoda, asked the question to MIT chairman of that time, Paul Gray, how do you teach creativity? And it was a very, you know, a question out of the blue. Paul Gray answered in this way, it was very interesting. He said, if you don't have it after K-12, entering MIT, you won't get it in college. So K-12 is very, very valuable in developing this sense of creativity in curiosity, acquiring new languages, going out to become a citizen of the world, a global connector, as we hope all children will become. And so China is also going through this with parents looking at their children and saying, how can this child become a global connector in a way in the future, in the future internet or e-commerce or, you know, logistics business as they see the future happening. And the future is connected to the center of innovation, which is the United States in many ways, Silicon Valley, New York, big cities, LA and so forth. So what you're saying is that there are these macro forces that are coming down and they're kind of impacting or influencing decisions that may become investments in the U.S. Well, getting back to Ray, I think you got touched on some important points that we discussed about. And one of the things is culture. You know, I've lived in China for 13 years and every day I learn something different. And I've come up with certain impressions that culture plays a really important point of this today also, why we talk about Confucianism. And the thing in China is that Confucianism means that when your parents raise you, they have hardships, you have to take care of them. Lack of a social security mechanism. So it means that parents always look at their child in China, you're my investment and you're my reward. You're going to have to come back and take care of me. So they're seeing now the internet. They're seeing iPhones. They're seeing, you know, how the kid has to be relevant. They're saying that in China, even if you want to build a strong domestic market, products, you know, and come back to China, you still have to have innovation. So it means sending your kid out to education in the West, preferably U.S. It used to be London now. It's more lean to the U.S. And it's fascinating because some of the things that I might have been in the education area is that I'm getting approached to work with programs. It started first with kids going to college in the U.S. Then it's in high school. Okay. And I know parents who send the kids in high school. They send them to the U.S. And now it's going to intermediate. And now I got this request about a week ago. We have a developing a program for five and six year old for the wealthy to take their kids out to go to the U.S. Maybe three or four days, just a few days to learn English, to get exposed to it, and take them around to do a tour, look at culture, go to Disneyland. And they're starting younger with the idea that the kids are going to move out at a young age. And if you're an immigration lawyer, there's a famous slogan that immigration lawyers say is with the movement of people, it means the movement of capital. Movement of people is movement of capital. So that's what we're getting to is the movement of capital. We're not talking about big companies now. We're talking about the massive, bigger, broader-based population who are looking to move outside and to move capital. And there's one thing that I'm seeing more and more. It's because of the type of society in China. It's a very different kind of culture. It's also a very different kind of government. And I'm not going to talk politics, but you got a lot of people. So you need a strong government, central government. And so people now with the internet forces around them are curious. And so they're looking outside. Well, there's also a legacy here. And 20 years ago, 25 years ago, when China began the road to modernization, there were ample numbers of people, young people, to work in manufacturing in the factories. Now we're at a time based on the legacy of one-child policy. We have an aging population coming up in China very quickly now. And because of one-child policy, also you have many families with just one that's going to take care of them also. So there are some kind of powerful kind of currents in the society that also must influence the government as well. We cannot continue on a manufacturing cheap labor kind of road. We need going up what we discussed before, going out of the value chain. We have to have innovation. We have to have value-added products. We cannot compete with Africa or Vietnam or other countries, India in the next 20 years. And I think going back to the market system, China realizes that you can't have just manufacturing to sit in exports. To keep an economy, domestic economy stable, you need to create a domestic market. So you need innovation brought into this market. You need kids to go to school in the U.S., colleges come back, work needs come back and bring that skills, innovation, thinking, okay. Some kids who are not going to be just wrote memory. And it's important that you have kids with that kind of culture. And to create a stable economy, they need to create a domestic market, domestic spending. Do so. They need, for them, companies, Chinese companies to go abroad. They need students to go abroad and come back to bring that back to China. So that's part of the equation why China is a lot of people moving out to China to study, because the hope is that they're going to come back. And likewise, Chinese companies that grow abroad, Lenovo, all these companies that they will become multinationals. And some of the workers who are Chinese at work in the U.S. will come back and again create their own companies and create just a real true domestic market. Now, I know this is another question from left field, but this is all positioning the subset of the middle class coming up. And then sending their young people to be educated in the U.S. and learn innovation, come back to China, and launch startups, and launch, you know, value training and kind of things. How receptive is China to foreigners coming in and doing the same thing? As foreigners did direct investment in the early days of manufacturing, is China receptive to startups by people from Silicon Valley also? China is always receptive for foreign investment in China. However, I think that it just depends on the different leadership change. And the current leadership is also very much worried that it may threaten the actual ruling party. And I think it's very legitimate about a concerned living in China. And, you know, it's not an easy thing to control 1.3 billion people. You really need a strong party where people would follow to some extent the laws in this order. So it's not easy. Because it's very similar to Japan. Japan has no immigration policy. It has aging population. It has areas that have depopulated. You know, people all come to one place, which is Tokyo. And so Tokyo has emerged as a major place. And with these young people who are trained in the US, you know, internationalized, come back to China, do you think they'll gravitate toward all to Hadyan, to Beijing, and Shanghai? Or will they also go to places where there are less innovation, like in Nimbo or Wuhan or Chengdu? That's a good question because the Chinese government recognizes that. They've created new areas like in Suzhou, other areas where they have high tech parks. Again, that's part of the equation to attract them back. But I think one of the important things to realize is that the government understands that their students will go abroad. Some will not return. And some will. And that's part of the risk they know that there's a drain of people and also intelligence and also money. So I think the question is now we're seeing a lot of middle class. They want to move their money out to China. The economy right now, the renminbi, is devalued. So even much more paramount importance for people who are moving up in the society to get their money out of China. And the thought is that they would get their money out of China so that when their child grows up, there's enough money, they can liquidate their property, buy property in the US, liquidate it, pay for the child's education. That's better than putting the money in the bank in China. Well, we talked about going up to the value chain in terms of products. Here, our family is going up the value chain in terms of their own lives in many ways and their futures through their children. I think what you're bringing in is we need another show almost on the mechanics of the ABCs of how they're going about going outside and one of the steps involved and one of the places where they're really succeeding, like you say, Fluxing, New York, other places with a Chinese language, Mandarin infrastructure, of legal, financial, all kinds of social and school educational kind of networks that have been established. But we're coming to the end of our program. Let me give you 10 seconds to what we talked about. Think about this. How do you bring that money out when the government says you can only take off $50,000 a year? That's important. $50,000, that's all you can exchange and take out. The Chinese are doing it. They're getting their money out and they're pooling their money and they take out millions of dollars. So I think we can talk to the mechanics next show and it is happening today in Honolulu because I know there are many Chinese that are doing that. Okay. Well, we're almost, we are at the end of our show, very exciting, very much focused on a current event that's going to affect the United States in many ways and probably in Honolulu. Thank you again. Thank you. Russell, thank you. Thank you. See you.