China's rich make plans to avoid smogMarch 18, 2014: 10:19 AM ET
The country's wealthiest residents are emigrating to other countries, in large part to avoid awful air pollution.
FORTUNE -- By the 1970s, Central Park was in a state of decay. Bridges were crumbling. Meadows had dried up. Graffiti and vandalism blighted playgrounds and benches. There was an overwhelming feeling that its best days had passed. "Positive use had increasingly been displaced by illicit and illegal activity," is how the Central Park Conservancy describes it today.
Then George Soros stepped in. Frustrated by what he and others saw as New York City's inept management of the 160-year-old institution, Soros and another financier commissioned a study on potential fixes. Its chief recommendation was creating a private citizen-based board to oversee an individual running the park's operations -- in effect, allowing private citizens to control the park. Soon the not-for-profit Central Park Conservancy was created, and the area returned to its former glory. Thirty years later the conservancy provides 75% of a nearly $60 million annual park budget and is a New York institution unto itself. The board of trustees includes former J.P. Morgan (JPM) Chairman and CEO William Harrison, KKR's (KKR) Henry Kravis, and the hedge fund manager John Paulson, who two years ago announced he would give $100 million to the conservancy, the largest park donation ever.
The growing wealth gap around the world is raising concerns about economic fairness and class divisions. But Central Park's revival illustrates the importance of the very wealthy in civic society. Their private dollars fund projects that governments won't, and they have an especially key role in urban centers. All this explains why reports of China's air pollution driving out wealthy residents are so troubling. Is China losing its most important residents to smog?
The air in northern Chinese cities has been poor for a while. But after the past few years of "air apocalypses" and record-high levels of PM 2.5, the dangerously small pollutants under 2.5 micrometers in size (1/30 the width of a human hair) that find their way into the bloodstream and have been linked to cancers and respiratory problems, citizens have increased complaints and growing numbers of rich have started making plans to move away.
A recent survey provides the strongest evidence yet that China's polluted cities risk driving away the rich. Released in January by the Hurun Research Institute, the survey shows 64% of China's rich (those with wealth above $1.6 million) were either immigrating to another country or planning to, a rise from 60% in the last poll two years ago. That came as a surprise to Rupert Hoogewerf, founder of the Hurun Report, an annual China rich list. He wasn't expecting the already high figure to grow. He says pollution and food safety was the second-biggest reason for emigrating, after the general desire for security and financial well-being. Although the numbers of those emigrating haven't yet reached a critical mass, Hoogewerf says "a lot of families are finding a lot of other rich families are going overseas," providing examples to follow.
What's happening is that those who can avoid the smog, especially families with children, are escaping what a recent Chinese study reportedly called "unlivable" cities like Beijing. They're seeking permanent residency in America and Canada, and European countries Cyprus, Portugal, and the U.K.
Earlier this winter I spoke with half a dozen wealthy mothers in Beijing who explained to me how pollution had some of them considering moving away. It was enlightening to hear because what the survey doesn't tell you is that the rich don't take moving to another country lightly. The women explained what a hard decision it was to make. China's culture and language had them wanting to stay. But many of them were afraid for their children's health, leading them to plans to go abroad.
I met the mothers at a Starbucks (SBUX). They swapped stories about smog like others might politics or sports in the café that opened to a luxury mall with Gucci, Prada, and Tom Ford boutiques.
Feng Fairbanks has two daughters, who are 10 years old and 8 years old. The local PTA raised 200,000 RMB ($33,000 USD) to buy air purifiers so that her children can at least enjoy clean air inside the school where recess is often cancelled because of smog. She wanted her daughters to attend school longer in Beijing, but she's returning to the U.K. with them in July. The air pollution was becoming too serious to plan on staying in Beijing for the long term. Her British husband, who runs a business consultancy in Beijing, is staying in China.
Coco Xiao told me she avoids playing with her two daughters outside. Last summer the family toured the U.S. -- visiting Atlanta, Las Vegas, Los Angeles, then San Francisco -- and was "amazed by the air." Her husband is setting up a consulting business in San Francisco in part to give the family an option to escape the pollution. She says the "government cannot afford to wait" to fix the air, but she's staying in Beijing for now.
The other mothers were more hesitant. As they sipped teas and lattes, they explained how the pollution was devastating but bearable -- for the time being. May Guo, dressed fashionably in black leather boots, has a 9-year-old daughter with asthma. She pulled out a 3M (MMM) mask -- "the best," she tells me -- then explained that air pollution is one of many factors to consider before leaving China. There's family, jobs, culture. She's waiting to make a decision on leaving.
Of course, many rich will stay in smoggy Beijing and China's other polluted cities. Opportunities in the world's fastest-growing major economy are hard to turn down. And surveys show the Chinese remain loyal about investing at home. But the air pollution problem isn't getting better anytime soon, and neither will the flight of China's wealthiest residents.