Never mind deflation and the property crisis - a brain drain could be the next big threat to China's economy

China has had a challenging year in 2023, struggling to address deflation and manage a worsening property crisis in Beijing. Now, a potential brain drain poses a significant concern for the second-largest economy worldwide. Over the past few years, tens of thousands of affluent individuals have opted to depart the nation.

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China's economy has had a challenging year thus far.

Following the conclusion of around three years of severe lockdowns aimed at eradicating COVID-19 at the end of 2022, Beijing has faced challenges in reigniting economic growth, combating deflation, and stabilizing a property sector deeply impacted by crisis.

A lesser-known economic danger that has not received much media attention is the phenomenon known as "brain drain", where exceptionally skilled and prosperous business owners have been gradually departing the nation in the last five years.

According to information gathered by the Wall Street Journal, approximately 9,000 individuals with considerable wealth, surpassing $1 million, departed from China each year throughout most of the 2010s.

However, starting from 2018, an increasing number of wealthy individuals from China have chosen to relocate to other countries. According to projections from consulting firms Henley & Partners and New World Wealth, around 13,500 Chinese millionaires are anticipated to emigrate from their homeland this year.

It's quite evident why the affluent individuals are leaving China.

Over the last couple of years, President Xi Jinping has taken tough measures against the business sector, specifically aiming at prominent figures such as Jack Ma, the founder of Alibaba. This has involved implementing strict regulations that have resulted in a significant decrease of more than $1 trillion in the market worth of major local technology companies.

According to the chief investment strategist at Mercer, the escalation in emigration among millionaires might also be influenced by the strict lockdown measures and economic downturn experienced by the country.

"The movement of skilled individuals has taken a different direction – now we witness Chinese citizens who were born in this country embark on a journey to establish their own businesses abroad in order to earn income," Rich Nuzum shared with Insider during a recent conversation.

"He mentioned that they are relocating to North America or western Europe in pursuit of enhanced political stability and improved prospects for themselves and their children," he further stated.

The phenomenon of brain drain is typically detrimental to a nation as it strips away an essential catalyst for economic progress.

Merely a couple of years back, experts were praising China as a forthcoming center of creativity owing to the growing count of billion-dollar startups situated there – nevertheless, if Beijing is unable to prevent prosperous entrepreneurs from opting to relocate to the Western countries, it will relinquish that edge.

Nuzum emphasized that the departure of talented individuals from a country has a detrimental effect on its economy. It is crucial to have capable leaders who can propel the economy towards progress.

"If a single business owner decides to depart, it may not be significant; however, if tens or hundreds of thousands migrate across the border, it becomes a major issue."