Chinese EB-5 Investment Creates Both Opportunities and Problems

Three factors hold great potential for American firms wishing to profit from the flow of hundreds of millions of Chinese investment dollars entering the American private sector annually through the Employment Based Fifth Preference (EB-5) Visa Program, also known as the Immigrant Investor Program. These factors include expertise in investment risk analysis, ROI calculation, and a willingness to operate inside China.

This program, which has been in existence since 1990, has become widely popular in the past few years. In fact, the number of Chinese EB-5 applicants, which has grown since 2008, now accounts for 80 percent of the 2012 applicant pool that generated a reported $1.8 billion in total investment.(1)  This massive level of recent investment, however, has EB-5 facilitators in both the U.S. and China struggling to harness and properly manage its facilitation. And the areas along the EB-5 facilitation process, where management on both sides has fallen short, has created a lucrative opportunity for the proper placement of key expertise.

Demand for Investment Risk Analysis

According to EB-5 program guidelines, foreign investors must invest either a minimum of $500,000 if through a federally-designated Regional Center (RCs) — or a minimum of $1 million if not through an RC — into a new or existing enterprise in the U.S. In turn, if the investment creates at least ten jobs for qualified American workers, the foreign investor, spouse and every family member under 21 are granted green cards.(2)

There is no shortage of success stories for well-managed Chinese EB-5 investment projects. Chinese EB-5 investors have made possible the multimillion dollar investments needed to redevelop a Brooklyn Navy Yard industrial park,(3) build a casino in Maryland’s Anne Arundel county,(4) and purchase half of Toledo’s troubled Marina District.(5)  The massive influx over the past several years of Chinese EB-5 investment into the U.S.(6) also is one of the reasons why Washington, D.C. opened a Shanghai representative office in 2012.(7)  However, the program’s full potential has yet to be fulfilled.

American-owned firms inside China that provide EB-5 facilitation services likely will receive more credibility.

The U.S. Customs & Immigration Service (USCIS) administers the EB-5 program. Its network of over 230 Regional Centers provides fee-based support, from legal and business professionals, to match investors to investment opportunities.

While RCs have nearly doubled in number since 2010, the quality of many EB-5 projects are being compromised due to the absence of expertise needed to determine which investment destinations may feasibly provide a return,(8) and to a lesser extent, the ability to determine which Chinese EB-5 investors are serious business investors and which are solely interested in green cards.(9)  Fully tapping the potential of Chinese EB-5 investment, then, will in large part be a matter for business and legal professionals with investment risk analysis and expertise who wish to offer their assistance to incoming Chinese EB-5 investors, be it through RCs or in private firms.

Home Field Advantage — Reversed

The prospect of an American-owned EB-5 consultancy operating inside China is another highly valuable, yet lacking area to be capitalized on. An authority in Chinese EB-5 investment attraction and facilitation, the Illinois-based Artisan Business Group, Inc. (ABG), has three China-based branch offices as well as an EB-5 China marketing and field support Center. ABG’s China-based presence, which has been critical to interested investors through their ability to bring RCs on private trade missions to several Chinese cities and meet with potential Chinese investors, has proven to be a highly effective investor recruitment model.(10)

A presence inside China like this lends to more than just a logistical advantage. Why? The majority of consultancies facilitating the EB-5 process inside China are Chinese-owned. And according to various American professionals inside China, many of these Chinese consultancies “say anything” to unknowing potential Chinese investors in order to collect a service fee. As a result, American-owned firms operating inside China that provide EB-5 facilitation services likely will receive more credibility from American investors than often corrupt Chinese-owned consultancies.

The Data Counts

In April 2012, USCIS directors explained to this author that data aggregation between USCIS and RCs was poor and that RCs do not aggregate investment values by country.(11)  Viewing the annual audit reports from RCs — which USCIS made reporting of mandatory in 2011 — confirm this.(12)

EB5 Visas by Country

Consequently, trends and patterns of Chinese EB-5 investment by industry into the U.S. cannot be fully quantified, tracked or understood.(13)  Private consultancies offering EB-5 facilitation services that are able, however, to calculate ROI both by industry and country of investor origin — in this case, China — hold several advantages. Collecting data by industry and country can allow for easy identification and targeting of industries in China housing investors, and in the counterpart industries in the U.S. seeking investment for projects. And calculating country-based ROI from that data can allow consultancies to produce marketing materials showing detailed, concrete results likely to be highly attractive to the targeted Chinese and American industries and potential clients within them.

More broadly, consultancies using such practices gain an understanding of Chinese EB-5 investment flows and patterns not available to USCIS and RCs, and would thus be better able to maximize profitability from Chinese EB-5 investment that RCs cannot. Economic impact analysis programs and services, such as Impact DataSource and IMPLAN, are available and often used by state economic development agencies to show ROI.

About The Author Benjamin Leffel

Benjamin Leffel is Director of Research for the Tai Initiative, a U.S.-China subnational relations capacity building organization, and a Ph.D. student at University of California, Irvine, advancing research on this field.




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