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Bloomberg piece on EB-5 fixers in China skeptical until it quotes Cruz: "EB-5 creates jobs at zero taxpayer expense"

Four Bloomberg staffers produced a very interesting 9/14/17 article piece on the EB-5 immigration program  How Rich Chinese Use Visa Fixers to Move to the U.S., with the delightful gif at right.

They describe Vivian Ding of the migration consultancy Qiaowai:
Tall, with a commanding presence, Ding is what you might get if Tony Robbins were a Chinese woman capable of both pumping up a cavernous ballroom and filling out an I-526, the Immigrant Petition by Alien Entrepreneur form. Standing next to a 6-foot-high pyramid draped in black velvet, she recounted her own move to America and described the prestigious U.S. high school her daughters attended, thanks to a program that lets immigrants invest in new commercial enterprises in exchange for permanent residency visas—green cards. The cloth was pulled to reveal a model of a Manhattan building: the glassy residences on the Hudson River now known as Via 57 West. Sign a contract that day to lend $500,000, help build a “landmark for mankind”—and take home a prize, Ding implored the audience. That day, the prize was an iPad mini.
Remember, this is supposed to be a job-creating investment. But the would-be immigrants who park their money in a low-interest loan, pay Qiaowai $50,000 in fees, and pay other fees, don't care much about investment return or jobs created. They want green cards for themselves and their families.

Whiffs of scandal

The article notes some whiffs of scandal: Qiaowai has partnered with Kushner Cos., the firm owned by President Trump’s son-in-law Jared Kushner, whose sister invoked family connections in trying to pitch an EB-5 investment in Jersey City, and Qiaowai produced deceptive advertisements claiming a green card and investment safety were guaranteed.

And despite promises by Qiaowai to reform, Bloomberg reporter witnessed the following:
This day, Song was announcing the company’s newest project (its 88th, according to the company website), a Criterion Group development on the Astoria waterfront in Queens, N.Y. Even though congressional critics were calling for an investigation of Qiaowai’s claims at the Kushner event, Song repeated the pitch. “Choose Qiaowai,” she told attendees, “you will get what you want. Guaranteed.”
Remember what Evan Osnos wrote about the level of corruption in China: "Every country has corruption, but China's was approaching a level of its own."


I've written about the deceptions by Qiaowai (aka Qiao Wai) regarding Atlantic Yards.

Money from thin air (or public assets)

The article says that immigrant investors typically get less .5% return or less, while developers pay 4-8%, instead of 10-18%. The regional centers, the private middlemen in the USA (like the New York Regional Center or the U.S. Immigration Fund with Atlantic Yards), keep much of the spread.

If the projects funded by immigrant investors actually created jobs, this might be justified. In many cases they don't. All these people and entities profit from the federal government's willingness to allow private parties profit from scarce public assets: visas.

It mentions that, among the former public officials, hired on to provide a gloss of legitimacy, include former New York Mayor Rudy Giuliani. (Remember, so did David Paterson, John Sampson, and Larry Seabrook, among others, and former ESDC Chairman Charles Gargano now works for the U.S. Immigration Fund.)

Moving money overseas

Bloomberg notes that, because Chinese citizens can only "move only $50,000 abroad each year," which is just one-tenth of the total needed for an EB-5 investment (not to mention fees), "investors often line up friends and family, or even pay strangers, to wire money overseas, a process known as 'ant moving.'"

One speaker observed by Bloomberg suggested that people open multiple overseas accounts. Is that how units at 550 Vanderbilt have been purchased?

A disappointing conclusion

Despite numerous examples of sketchy behavior, Bloomberg's reporters failed to acknowledge the notion of opportunity cost, that we could gain far more from abandoning EB-5 and requiring direct investment or loans to the government:
Congress, for its part, continues to scrutinize the program. Primarily because of opposition by Grassley, Democratic Senator Dianne Feinstein of California, and a few others, EB-5 has been surviving on short-term extensions for the past two years. Feinstein wants to kill the program entirely. 
But that appears to be a minority view. Most politicians find it hard to turn down any program that promises economic development, and even some of those who take a hard line on immigration can stomach EB-5. In July, Senator Ted Cruz spoke in San Francisco at the EB-5 & Investment Immigration Convention. The Texas Republican told attendees that EB-5 creates jobs at zero taxpayer expense. The program also meshes with the priorities Trump set in his immigration proposal to curtail family preferences while maintaining those based on skills or wealth. Trump and his son-in-law, of course, have benefited from the program themselves through the Jersey City project. Kushner says he’s recused himself from any administration decisions on EB-5. 
It may be that the only losers in this system are the prospective immigrants. 
(Emphasis added)

Ted Cruz, repeating an industry talking point, is utterly wrong on two counts. First, jobs are often not created. Second, there is a taxpayer expense.

Dartmouth's John Vogel had a particularly insightful analysis in 2013: 
One of the oddities about the EB-5 program is that the U.S. government is giving out the green cards, but the entrepreneur who puts together the investment gets the money. This scheme seems inefficient and open to corruption. If our government really believes that it is a good idea to sell green cards, maybe we should drop the pretense that this is a job creation program. It might be more efficient to have the money go directly to the U.S. Treasury and reduce the deficit by billions of dollars a year. In fact, the U.S. government could auction off these green cards and perhaps raise even more money.

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