By Jin Ge

Recently a presentation by Dragonomics’s Arthur Kroeber has been widely circulated among investors. The presentation repudiates several crises that China bears are betting on, including investment bubble, housing market bubble, public sector debt, low consumption, labor shortage and mid-income trap.  But what bothers me most is that China bulls are arguing with the wrong people, they should not be arguing with people like Jim Chanos or Hugh Henry, the true China bears are the millions of Chinese elites who are emigrating abroad. These people are insiders and winners of China’s economic boom and their stakes in China are much higher than foreign financial investors. We should listen to what they are worrying about.

A recent survey conducted jointly by Hurun Institute and Bank of China’s private banking department found that 14% of Chinese millionaires (in dollar term) have emigrated abroad, and another 50% are considering it. Another survey by China Merchant Bank’s private banking department also found that 60% of Chinese millionaires have completed or are planning emigration.  Let’s not forget that in China the amount of people who are applying for “skilled professional immigration” are 20 times that of people who are applying for “Investor Immigration”. Unlike the millionaires, the skilled professionals are not just diversifying their investment, they are actually leaving China, often with their families.

The top concerns listed by the emigrants include: environment, education. fairness, security, life style etc.;these words don’t appear often in the debates between bulls and bears among foreign investor. But these are issues that will determine the long term prospect of Chinese economy.

The environment is not a concern for short-term investors. The foreign investors I know in Beijing all have expensive air filters, and many of them kept their family in HK or Singapore. The government officials have their designated organic farms as well as air filters. The factory owners who took advantage of loose environmental regulations sent their kids aboard. You could say the whole industrialization process of China benefited most from low environmental standards, but only those who emigrate can take the benefits, and those who cannot leave will face all the long-term environmental cost.

The concerns over fairness and security have everything to do with the lack of rule of law, government accountability and social justice in China. Many millionaires actually made their fortune though the loopholes of this system, but they too feel this system is full of uncertainty and maybe one day they will be judged for their “original sin”. The middle-class skilled professionals might feel better when comparing themselves to the migrant workers. But they are aware of the concentration of power and money in fewer and fewer hands, and they often feel powerless facing the invincible and exclusive circles of power elites. And I also get the sense from conversations with both the rich and the middle class that they are worried about how unstable our society might become when the first generation migrant workers become too old to work and find out their saving is eroded by inflation, and they have no medicare, pension or social safety net, and they have lost their land and their children have lost opportunities of education.

Many people are saying that they emigrate for their children. Isn’t it the ultimate short selling of China’s future? To be fair, people here often have an all too romanticized vision of western education and place too much emphasis on learning English. But people are losing confidence in our education system. Several friends of mine told me that the competition between kids in school is no longer about grade or talent, it’s about whose parents are richer and more powerful and what luxury goods they possess, even teachers treat students differently according to their parents’ social status. Moreover, many people felt that they lost themselves in a dog eat dog world, and they don’t want their children to suffer the same thing.

It is one thing to buy a put option to hedge against the downside risk of your stock, but it is another to plan emigration to hedge against the collapse of a society. The latter involves not only money, but also all aspects of your life. I’m not saying that the country will implode soon, but the wide-spread anxiety and pessimism itself will impact the Chinese economy deeply.

Despite my impulsive rant above, I actually think the country will muddle through, only the lives of millions of migrant workers and the environment are irreversibly ruined. Even many of the people who did change their nationality still keep their money-making part of life in China, there are still plenty of investment opportunities here. All I am saying is that the true “big short” of China are the emigrating elites, and they have a much more solid case than what the bullish foreign investors have in mind.