China's new travel rules unsettle tech giants and talent

China's new travel rules are causing concern among technology giants and talent, according to experts. These regulations allow Chinese authorities to prevent engineers, founders, and specialists from leaving the country if their expertise in batteries, rare earths, or artificial intelligence is deemed a threat to industrial and technological security. The measures also include tighter outbound investment rules, crackdowns on Chinese nationals holding wealth offshore, and restrictions on posting technical staff abroad.

Law professor Henry Gao from Singapore Management University believes these curbs reveal the true state of China's economy, indicating deep concerns about economic weakness and substantial capital outflows. Authorities are determined to stop entrepreneurs and skilled personnel from leaving the country.

The strain on China's economy is evident, with strong export demand for high-tech goods, but weakened domestic consumption due to the property crash, falling bank lending, and a nearly quarter-year drop in new car sales. This anxiety extends to people and money leaving the country.

A prominent example is the AI startup Manus, founded by two Chinese nationals in Beijing. The company moved its headquarters to Singapore to avoid US investment curbs and expand globally. Facebook's owner, Meta, attempted to acquire Manus for $2 billion but was blocked by Beijing, and the founders were barred from leaving the country.

Rumors have circulated about potential departures of Huawei founder and CEO Ren Zhengfei and his daughter, CFO Meng Wanzhou. However, these claims have not been confirmed by the tech giant or Chinese authorities. The annual $50,000 foreign-exchange quota for households has remained unchanged, but Beijing has tightened unofficial routes wealthy individuals use to circumvent the cap.

Emigration agents, offshore brokers, and trusts have grown to help people and their capital move around the limits. SMU's Gao warns that more difficult capital or people movement abroad may incentivize those with means to find alternative ways out, potentially worsening the economic problems the measures aim to contain.

Garcia-Herrero, chief economist for Asia-Pacific at Natixis, believes the block on talent will have a more significant impact than the squeeze on capital. It is harder to replace a process engineer who cannot board a plane or decline an overseas job due to an indefinite ban. The risk is already affecting China's AI firms, which are rapidly catching up with their US rivals.