New World, New Policy: Entrepreneurial Money Produces Residency Permits

A successful Chinese entrepreneur, showed me a news article. It reported that wealthy Chinese could buy an American passport and become US citizens. Is this really true? What are the implications of this visa program?

The US Employment Based Fifth Preference (EB-5) program was established by the U.S. Congress in 1990, to link investment, employment and residency. Three years later, the program language was relaxed from “to create ten direct employment opportunities”, to “directly or indirectly create 10 job opportunities.” This is broad and flexible wording. It is designed for entrepreneurial and wealthy investors outside the US, who fund a new commercial enterprise of  at least $500,000 for investments. Under the program, those entrepreneurs, their spouses and their unmarried children under 21 years old can apply for green cards permitting residency.The objective is to attract foreign investments to the U.S., and to stimulate economic development and job creation.

EB-5 demand has increased rapidly. In 2012, President Obama extended the program. In May of 2017, Congress extended the EB-5 Program until September 2017. There are many supporters.

In 2014, 10 thousand EB-5 petitions were filed with the United States Citizenship and Immigration Services (“USCIS”). Overall, 5,115 have been approved. Over $2.5 billion investments were attracted. An additional $6.2 billion are awaiting federal adjudication. EB-5 capital is also an attractive low cost funding tool for project developers in the U.S. It offers foreign investors a way to permanent residency that is not backlogged by other applications and does not require sponsorship by a US employer.

Throughout the world today,  numerous programs like the EB-5 have been established. In Australia for example, foreign investors are granted the opportunity to immigrate, but only receive temporary residency for four years. An investment of AUD $1.5 million in an Australian company ( U.S $1.2 million) is required. France allows foreign investors to obtain residency for 10 years by making a “long term  and non-speculative investment of at least € 10 million (U.S $11.8 million) in industrial or commercial assets.”

There is a standard moral objection to the EB-5 program: The United States should not be in the business of selling the right to live there. This claim suffers from a slight misunderstanding. In effect, the government gives the visas away — to profit-making businesses that have jumped through the program’s requisite bureaucratic hoops. Then the companies can solicit investment based on the promise of permanent residency. In spite of ten thousand slots a year, 40,000 investors still wait for a green card. Obviously investor needs have not been met.

Investment immigrants are in high supply. The U.S government should use the opportunity and open the gates to them. The U.S. has an immigration culture, with a spirit willing to absorb both elites and  refugees of the world.

However, change must come; the program needs to be refined in terms of size of investment, number of jobs generated, industry direction, geographic location, and job recipients. I believe that the investment minimum should be $2.5 million, and the American job creation shall be at least 25. Then we can continue this program helping both investors and employees; a noble outcome!

New World New Policy: What Art Tells Us About the Global Economy

dafen-oil-painting-villageProfessor Michael R. Czinkota

The modern world of art offers fascinating insights into the forces currently shaping world trade and the global economic system. For decades, China has experienced breakneck economic growth and has become a world leader in both the consumption and production of art, which illustrates some intriguing changes in the global economy.

The global market for high-end, rare art pieces is a good example. In recent years, as China grew more prosperous, there has been a sharp uptick in luxury art purchases by Chinese customers. In 2016, according to insider information, Oprah Winfrey sold a 54”x54” painting to a Chinese collector for $150 million. This example indicates how China has grown in its appreciation of originals. This shift perhaps presages an eventual reduction in counterfeit products for which China is still infamous. Chinese auction houses have also risen to prominence. Of the world’s top ten art auction houses, six are Chinese, and many of the largest art houses are state-owned enterprises.

In the art world, China has not only become a dramatic consumer of art, but also a prodigious producer. The southern Chinese city of Dafen, nearby to megacity Shenzhen which borders Hong Kong, has become the center of knock off art masterpieces. Beginning in the 1980’s reform era, Dafen became a hub for starving artists from around the country to work and train, pumping out high-quality knock-offs of famous European and American painters ranging from van Gogh’s Sunflowers to portraits of Western icon John Wayne. Artists produce these works on the cheap and can offer custom alterations, such as changes to the color or size to fit the purchaser’s own décor. Since the works are not signed, they do not count as fakes.

The producers of export knock-off masterpieces will face pressure to adapt, focusing more on creativity and original works. When Chinese artists copy the great masters, they hone their skills and imagination, which over time will allow them to eventually emerge as new artists in their own rights

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New World, New Policy: How Tax Cuts help U.S companies to go abroad

Professor Michael Czinkota

World trade has forged a network of global linkages, in which everyone and every country is involved. Nowadays, a drought in Brazil and its effect on coffee production and prices is felt around the world. U.S subsidies for ethanol production from corn affects prices for other agricultural crops and livestock in the far reaches of the world. As the key player in globalization, any U.S reform tends to change the international market. The old saying goes, if the U.S. sneezes, other nations catch a cold.

After only 100-days in office, President Trump has already released a tax reform memo to the public. Although not complete and detailed, there is clear a signal coming from the release how the government would like to encourage U.S companies to export and invest abroad.

First, comes a cut in the top tax rate for all businesses to 15%, far below the current 35% top rate. This reduction is not imbalanced since it would also benefit the owners and shareholders of international corporations in the United States. With this tax cut, companies, especially manufacturers, can lower the price of exports and have more money for R&D and marketing. This measure will greatly enhance the competitiveness of U.S goods in the global market. Also, a tax reduction will significantly reduce the financial constraint on companies and allow American companies to seek investment opportunities on a global scale.

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New World, New Policy

The changing composition of U.S. trade 
international_trade_2We have often heated discussions on trade policy shifts. To make reasonable arguments, we must consider that the fundamental composition of trade has been changing. For example, from the 1960s to 1990s, the trade role of primary commodities has declined precipitously while in parallel, the importance of manufactured goods has increased. This has meant that those countries and workers who had specialized in commodities such as rubber or mining typically fell behind those that had embarked on strengthening their manufacturing sector. With sharply declining world market prices for commodities and rising prices for manufactured goods, commodity producers were increasingly unable to keep pace. Some commodity-dependent countries realized temporary windfalls as prices of oil, wheat, and corn rose dramatically, only to watch them evaporate as prices dropped in 2009.

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Distinguished Guest Speaker from the World Bank

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On February 18th, our class got the pleasure of having a distinguished guest speaker Ms. Anabel Gonzalez, Senior Director of  World Bank Group Global Practice on Trade and Competitiveness . We are very grateful for the inspiring thoughts and valuable experiences she shared with us.