With the CE deciding to suspend a 12-year-old program that allowed millionaires from the mainland to run tax-free operations in HK, perhaps it's time to review what went wrong. Cheng Yingqi reports. Critics are virtually unanimous in their view that Hong Kong's investor immigration program needs a review. Detractors of the program feel, for the most part, investor immigrants have proved to be more of a liability than an asset to the local economy. They did little to create new jobs, increase local competitiveness, bring innovative ideas, or contribute salaries and business taxes. Their effect was to exacerbate social tensions already present in Hong Kong. As the cost of basic consumer products, services and real estate seem to hit the roof, social inequalities - between the native Hongkongers of modest means and the wealthy immigrant from the mainland - become even more jarring. The moneyed mainlanders cut across social stereotypes - business tycoons, leading scientists, TV and movie stars and athletes, including Zhang Ziyi, former Olympic gymnastics champion Liu Xuan, and acclaimed pianist Lang Lang. Most mainland immigrants had no desire to work in Hong Kong, or even live here. "Seventy percent of my clients who acquire Hong Kong residence are entrepreneurs from small counties who do not speak English. Hong Kong is their first choice because there is no language problem. The other 30 percent are businessmen from larger cities, who use Hong Kong as a currency transit point, where they may settle accounts in dollars. Either way, the great majority of immigrants live their normal lives on the mainland after acquiring Hong Kong residency," explained Xu Zuhong, president of Guangzhou-based migration agent Dacheng Immigration. "Most important of all, Hong Kong did not charge taxes on offshore companies, which made the SAR very popular among wealthy entrepreneurs," Xu added. Experts agree that Hong Kong was overdue for a change in its immigration policy. "Hong Kong's immigration policy took a wrong turn in the past 11 years. The policy didn't play the role it ought to have played - bringing in the talent, industry restructuring and innovation that Hong Kong needs," said Ma Jianbo, a council member at the local think tank Wisdom Hong Kong. Ma explained that the policy was beneficial in the beginning, but over time the programs - for investor immigrants, talented people, professionals and entrepreneurs - did little to replenish the labor pool or increase the tax base. The Hong Kong government started the Capital Investment Entrant Scheme on Oct 21, 2003. There was a recession in those days. By Dec 31, 2014, the program had approved 25,504 immigrants, 89 percent of them Chinese nationals from the mainland Initially the program required a minimum investment of HK$6.5 million. There was a listing of "permissible assets" under the program - but no stipulation requiring applicants to start a business or join one in Hong Kong. The program's shortcomings come into sharper focus with the assistance of figures released by the Statistics and Immigration Department, revealing that the investment immigration program poured some HK$42.59 billion into the city's real estate sector between 2003 and 2011. On Oct 13, 2010, among measures to curb skyrocketing real estate prices, the government increased the investment threshold to HK$10 million, and suspended real estate from the list of permissible investments. Ma pointed out that in 2010 almost all the luxury villas and most apartments under HK$2 million in Hong Kong were sold to wealthy immigrants from the mainland. Spiraling property prices

According to a report published by Wealth-X and UBS in November 2014, Hong Kong ranked fourth among all Asian regions and 13th globally in terms of ultra-high net worth population - those with net assets of at least $30 million. For every 1 million people in Hong Kong, there are 460 individuals worth more than $30 million, a ratio 20 times higher than the global average. The heavy   consumption of these wealthy immigrants of consumer goods, including the popularity of luxury products, created a local price spiral, especially in the property market. Manufacturing industries were squeezed out. "Costs are too high for manufacturing industries to survive," said Lu Xin, an expert in public finance. Lu worked for the Ministry of Finance before starting his own asset management company in Hong Kong. Most wealthy immigrants pay neither labor nor business tax. The Hong Kong government does not levy taxes on their real properties. There is no inheritance tax. The very wealthy don't pay their fair share to support the local economy. Statistics provided by the Inland Revenue Department in Hong Kong show that the number of people actually paying salary tax in 2012-13 was 1,595,063. That's a mere 22 percent of the estimated residential population of 7,234,800 as of August 2014. Lu argued that the city's immigration policies pushed up real estate prices and living costs for people who remained and crushed the middle class….

http://www.chinadaily.com.cn/hkedition/2015-01/28/content_19424810.htm