Vivek Wadhwa on the Reverse Brain Drain: The Implications for China

Vivek Wadhwa on his Business Week blog recently wrote about his research team's findings concerning the reverse brain drain of skilled immigrants from the US back home (link here). His research on this topic has focused mainly on Indian and Chinese immigrants. While I pointed out this worrying trend three years ago in an op-ed in the San Jose Mercury News (link here), the work by Wadhwa and his colleagues has gathered evidence of the growing dimensions of this reverse brain drain. Undoubtedly, losing these skilled immigrants is a loss for the United States, but the implications are not all positive for China.

What should worry China most about Wadhwa's findings is the relative youth of the returnees to China. The average of these Chinese returnees was 33. We often tend to think of technology workers as relative young and that this youth can bring a fair amount of new insight, energy and entrepreneurial enthusiasm. However, I have heard plenty of complaints from VCs, technological entrepreneurs and other industry insiders in China that many of these young returnees returned too soon without the requisite experience to be entrepreneurs or top managers in new China-based start-ups. Evidence from Wadhwa's study shows that these returnees enjoy a substantial move up in the ranks of management upon their return to China, but what is good for individual returnees may not be good for the development of China's tech sector. Ironically, these insiders generally feel China would be better off if these returnees stayed in the US to accumulate further experience before returning home. In recent years too many inexperienced returnees have taken on levels of managerial authority in China-based firms that they are ill equipped to handle.

What should also worry China are the factors that may turn the tide back in favor of emigrating to the US. It is clear that over the last several years Western VCs were becoming less and less willing to throw good money after bad in China even before the financial crisis dried up credit all around. Thus, even without the financial crisis, the VC environment was becoming much tougher. Although the survey by Wadhwa and his colleagues was done in 2008, it probably did not capture the full effects of this change in funding opportunities possibly because of some selection bias among the respondents. One could think that the financial crisis, having started in the States, would impact America more than it would China, but I firmly believe the entrepreneurial side of the tech sector in China will be hurt badly. Certainly China will probably not slip into negative growth, but with its export-oriented economy suffering from lack of demand from the rest of the world and the Chinese consumer missing in action, there were be many fewer appealing opportunities for China-based ventures. In effect, the China bubble of overeager VCs has popped just as the world has been hit by the financial crisis. It is hard to imagine the type of venture funding of years past will be readily available over the next several years. Even before the financial crisis I had heard many stories of disillusioned returnees heading back to the States after they realized the road blocks (institutional, legal and technological) that still act as barriers to sophisticated tech entrepreneurship in China. The growing crisis may just accelerate the reversal of the reverse brain drain and this "return" to emigration could last at least several years.