Sober Look has an intriguing little post up on how expats are leaving China and why that is a bearish portent. Having worked for a Japanese bank during its bubble years (I left a few months before the Nikkei peaked), there was a clear, rapid ramping up of foreign staff in Tokyo and the cutbacks were aggressive when profits fell. It’s not hard to understand why. Most foreign firms are opportunistic and they need to see either strong growth potential and/or high margins to support running an operation with meaningful numbers of workers that they’ve shipped in (expats are expensive: they usually need special housing allowances, trips back to their home country, and employer-paid tax advice to take these postings, particularly since they are risky from a career standpoint. For most companies, they take you out of the mainstream career track, and despite the aggressive talk about how if you do a great job in this outpost, you’ll be on the fast track to promotion, the reverse is usually true: you are out of sight and signicantly out of mind as far as the top brass are concerned. Your contacts outside your company back at home erode due to the distance, which puts you at general career risk. And even though you are developing local contacts (well, actually, maybe, expats often hang out with other expats), if the business promise of your new foreign home fades, the locals are better placed to reposition themselves than you. Even though committed foreign firms try to hire local staff in leadership positions as soon as possible, that’s a difficult task, since natives will (correctly) question their long-term career prospects with a foreign firm, and the foreign firm will require a high level of language competence in its native tongue. As a consequence, the small pool of available “talent” is often bid up.
Sober Look indicates the evidence so far is anecdotal, citing an article in Prospect:
Besides some of the reasons specific to China, expats leaving a nation can be a leading indicator of weaker economic growth. For example the number of expats in Japan apparently also declined in the 90s, although exact numbers are difficult to pinpoint. What is clear however is that a bubble economy often creates unrealistic expectations about future growth, attracting capital and talent. And when the bubble bursts, years of sub-par growth ensue.
Prospect: – When the bubble pops, or in the remote chance that it deflates gradually, the wealth the [China's Communist] Party gave the people will deflate too. The promise will have been broken. And there’ll still be the medical bills, pensions and school fees. The people will want their money back, or a say in their future, which amounts to a political voice. If they are denied, they will cease to be harmonious.
Expat departures are a lagging indicator, so if this is indeed a trend, it says that foreigners on the ground see that the risk/reward prospects for China have changed and are acting accordingly.