by Brandon Meyer
Everyone in the EB-5 industry knows that the People’s Republic of China (China) is the epicenter of investor volume, having comprised 80 + percent of overall EB-5 investors for several years now. While China’s dominance within the EB-5 industry has various benefits and virtues, few experienced businesspeople would seek to be completely dependent on one market for all, if not most, of their business. Yet, in the EB-5 industry, this is exactly how many stakeholders structure their business. Many stakeholders pay lip-service or aspire to the diversification of their distribution channels, but when it comes down to actually following through, reluctance often wins out, and little efforts to diversify away from China actually takes place. For instance, before I made my first trip to Vietnam to gauge interest in EB-5 in March 2011, one regional center principal told me that I was “chasing rainbows in Vietnam.” The country, he said, was too poor to generate sufficient numbers of EB-5 investors to justify any marketing initiatives in Vietnam. There was no point in even trying to see what potential EB-5 had in Vietnam.
Many in the EB-5 industry would agree with his recommendation: that “China is the only place to be” in EB-5. China was poised for endless, rapid economic growth with no dark clouds on the horizon. After all, the academic and think-tank circuits were replete with seminars, articles, and books on the “China Model,” in which a super-competent authoritarian state had the all-knowing and all-seeing ability to stage-manage political stability and economic growth simultaneously. The “China Model” was all about the upside, and no downside existed. China, in short, had become the functional equivalent of an economic Disneyland. Oh, what a change four and a half years can bring.
China is currently in the midst of several simultaneous mini-economic crises, which may presage the “hard landing” of the Chinese economy that some have been predicting for some time now. As with the law of gravity, a rule of thumb for economies is that what goes up, must come down. While China still generates the bulk of EB-5 investors, the medium to long-term impact of China’s current stock market woes remains to be seen. The current situation has potential to slow export and overall economic growth, lead to a potential collapse in the value of the Yuan (China has implemented numerous restrictions to prevent a collapse in the Yuan, which have the collateral impact of making it more difficult for EB-5 investors to transfer their funds out of the country), and change the political environment. The climate is ripe for the ever-looming specter of a real estate market crash, and a subsequent banking system collapse would have drastic effects on the Chinese EB-5 market. The time for diversification in EB-5 is now, and the need for it is more critical than ever.
During this same four and a half year period, from 2011 – 2015, Vietnam rose from a single-digit producer to second place behind China in the league table of EB-5 investors. And this stunning expansion in Vietnamese EB-5 investors occurred during a period of a debt-driven banking crisis, rapid inflation and slowing economic growth. Imagine how the volume out of Vietnam will grow once the banking sector mess is cleaned up, once inflation is reduced and the country returns to its long-term growth trajectory (Vietnam has favorable population demographics, while 35+ years of the one-child policy have China facing a demographic crater). Chasing rainbows in Vietnam? More like chasing the next growth market in EB-5. So what are the factors that have lead a country that is still desperately poor overall (let’s not forget that China is actually still a very poor country itself) to become a major EB-5 heavyweight almost overnight?
EB-5 has been on the radar of wealthy Vietnamese since 2003, but the program was not well understood and the market needed EB-5 professionals to provide education. Now, the term “Investment Immigration USA” appears frequently on local newspapers such as Tuoi Tre, Tien Phong, VNExpress.vn and TV channels, such as VTC8. Over the past few years, the significant increase in demand for EB-5 visas is proven by the number of consulting companies that have rapidly formed to catch up with market demand.
What makes the EB-5 program attractive to Vietnamese investors?
- American dream for Vietnamese people.
- Green Card for spouse and children.
- No age, education, professional working experience requirements.
- Compared to other investment immigration programs, such as those in Australia and Canada, the EB-5 program is favorable for Vietnamese investors in terms of short processing times, a lower amount of investment, return on investment and no priority date.
The Vietnamese are generally well disposed to the United States. Most people who live in the Southern part of the country (the most dynamic region of Vietnam) have at least one family member or friend living in the United States, a legacy of waves of refugees fleeing the country. The waves occurred predominately at the end of the Vietnam War in 1975 and in the wake of China’s invasion of Vietnam in 1979, which led to the Vietnamese government expelling ethnic Chinese citizens from the country in retaliation. A natural affinity for the United States and belief (right or wrong) that the Vietnamese have an understanding of life in America, based on the information provided by friends and family, means that EB-5 is really the only game in town when it comes to investor migration from Vietnam.
A tendency to think of EB-5 as the culmination of people’s dreams and aspirations pervades the EB-5 industry. The mindset is that people become rich in their home country, then leave it soon thereafter to satisfy a lifelong desire to live in the United States. While this is undoubtedly true for some people, the reality is that EB-5 is an industry that thrives on other people’s disasters, fears, political and economic instability and general paranoia about things going wrong very quickly in an investor’s home country. A cursory look at some of the traditional top-ten sources of EB-5 investors illustrates this point:
1) China, where political, legal and economic instability make having an exit strategy imperative for the wealthy;
2) Taiwan, which lives with the fear of forcible reunification with Mainland China;
3) South Korea, which lives with the ever-present threat of a nuclear-armed North Korea;
4) Venezuela, suffering under 15 years of Chavezism;
5) Iran, laboring under theocratic rule and economic sanctions; and
6) Mexico, on the verge of becoming a failed narco-state.
Vietnam is no different in this regard. While Vietnam did enjoy a period of rapid economic growth in the wake of economic liberalization (doi moi) beginning in the late 1980’s, the country still suffers from the dead hand of one-party totalitarian rule. The same political and economic dynamics that make EB-5 popular in China are also present in Vietnam. The United States tends to be unaware of the internal social and economic dynamics within Vietnam, a hangover from U.S. involvement in the Vietnamese civil war of the 1950’s, 1960’s and early 1970’s. While Vietnam has been a single political entity for the past 40 years, a sharp divide remains between north and south. Southerners still largely distrust northerners, who are now seen as economic carpetbaggers as opposed to being an invading force. By contrast, northerners, who are more cognizant of Vietnam’s geopolitical realities, cite fear of another invasion from China as an EB-5 “push factor.” In essence, southern Vietnamese are afraid of the northern Vietnamese, while northern Vietnamese are afraid of the Chinese. As uncomfortable as both of these points may be, these twin factors are important “back of the mind” considerations for EB-5 investors from Vietnam.
A subsidiary legacy of post-war Vietnam’s reliance on the Soviet Union is the presence of sizeable Vietnamese communities throughout Russia and the former Soviet Union. These communities have largely become prosperous through commerce and import/export activities. However, many of these communities are feeling pushed or crowded out in the Age of Putinism and are looking for an exit. Since many of these Russia and former Soviet Union-based communities have weak ties back to Vietnam, EB-5 becomes a viable escape option.
In sum, all of the necessary negative push factors exist in order to expand demand for EB-5 from Vietnam.
What do Vietnamese investors look for out of their EB-5 investment?
The EB-5 program’s investment amount is the cheapest (a minimum of $500,000 to invest in Regional Center, although this may change) compared to the investment immigration programs in Quebec or Australia, which require substantially more money. Some Vietnamese agents market investor migration to Cyprus or Portugal, but these programs have barely made a ripple in the Vietnamese market. Large Vietnamese communities in Orange County, California, San Jose, and the Houston areas facilitate the acclimatization process for Vietnamese immigrants to the United States. Similar communities do not exist in Cyprus or Portugal.
For Vietnamese investors, EB-5 is not primarily about the investment. Similar to the Chinese market, the lure of U.S. permanent residence for spouses and children is much stronger. Vietnamese investors are really looking for educational opportunities for their children. According to ICEF Monitor, in 2013 there were about 125,000 Vietnamese students pursuing studies overseas. Out of 125,000 students, there were approximately 19,500 students studying at U.S. Colleges and Universities that increased by 25.8 percent compared to 2012. This number shows that there is very high demand for study abroad in general, studying in America in particular.
Due to many limitations of student visas, the EB-5 program is catching Vietnamese investors’ attention. At the end of the day, investors can obtain green card for their children to live and study, and earn interest from investment. “The EB-5 program is extremely beneficial to families that have elementary and/or secondary school-aged children,” IIM Group’s president said in the interview broadcasting on VTC8, June 14, 2015.
EB-5 Vietnamese investor’s concerns and issues
A major hurdle for Vietnamese investors is to prove the origin of $500,000. Many people could spend dozen times this amount, but they cannot demonstrate where their funds are from. Difficulty with source of funds has led some have to give up the program. The second hurdle for investors is transferring money out of the country. According to Vietnam regulations, investors need to get approved by Ministry of Planning and Investment (MPI) in order to be able to transfer money abroad via the banking system. The process will involve different government agencies such as the Embassy of the U.S., Department of Foreign Affairs, and take about six months to a year or more to obtain all required documents. It is not a feasible and favorable path for Vietnamese investors. Therefore, Vietnamese investors often need to seek “alternative methods” for transferring their funds outside the United States to effectuate their EB-5 investment.
Current EB-5 market in Vietnam
Recently, the EB-5 program has become a phenomenon among wealthy Vietnamese investors. Because of its rapid growth, many consulting companies have jumped into the market, making it promising and competitive. At the same time, because of fraud and scams, the majority of Vietnamese people don’t understand the nature of the EB-5 program, which correctly deters them from joining the program. Demand is surplus, but the short supply of information makes it hard for investors to find a reliable source/agency in Vietnam (relatives in Orange County or San Jose count only so much). According to one EB-5 industry leader in Vietnam, “EB-5 is not suitable for those who look for life-changing opportunity. Many Vietnamese people misunderstand the program as an opportunity to come to America and become wealthy through investment. In fact, the main purpose of the program is to help fund projects and create jobs instead of making investors rich.” 
Effects of upcoming legislative reforms on the current EB-5 market in Vietnam
Vietnamese investors struggle to prove the lawful source of their EB-5 investment funds, probably even more so than EB-5 investors from China. If new legislation for the EB-5 Regional Center Program increases the minimum investment amount, this difficulty would increase. There are many wealthy Vietnamese who may be interested in EB-5, but who might not be qualified due to the lack of evidence regarding source of funds.
Nevertheless, the EB-5 program is predicted to grow rapidly in the next few years. With the U.S. Department of State developing a more positive and realistic attitude in issuing visitor visas to Vietnamese nationals, potential investors can now more easily travel to the United States. to perform their own project due diligence. Visiting gives them an opportunity to learn about the projects, the country, and be more confident in moving forward with an EB-5 investment.
As I drove into Hanoi from the airport in March 2011, I was struck by the similarities with Beijing during my first visit there in August 1994. The road to Beijing was lightly traveled, and agricultural/unimproved land lined both sides of the road. The trip to the center of town was long. In August 1994, the well-known EB-5 landmarks of the Lufthansa Center/Kempinski Hotel were the outer limits of Beijing. Now, this area is essentially mid-Beijing. The old farm and wasteland has now been replaced with high-rise apartments, office buildings and hotels (and a golf course).
The reason for making this comparison is to point out that Vietnam feels much like China did 15-20 years ago. I imagine that the EB-5 business in China 15-20 years ago was the same as Vietnam’s is today: blossoming interest in the program, coupled with a relative lack of understanding how the program works, with only a few brokers trying to organize the marketplace. I predict that the EB-5 market in Vietnam will follow roughly the same development trajectory as the EB-5 marketplace developed in China, in the same way that Vietnam will follow China’s overall economic development trajectory. While it might be unrealistic to expect Vietnam to eventually become 80 percent of the EB-5 market, as China represents, it is not unrealistic for Vietnam to eventually settle somewhere between five to ten percent of the EB-5 market. For any Regional Center interested in diversifying its distribution channels, Vietnam is a market than can no longer be overlooked.
 According to “Raw I-526 Data” compiled by the Association to Invest in the USA, USCIS approved the following number of I-526 petitions filed by Chinese investors: 1) 2011-921; 2) 2012- 2873; and, 3) 2013- 3,147. Comparable numbers for Vietnam for the years 2011-2013 were 12, 24, and 23 by comparison, not truly presaging the surge to come. See http://member.iiusa.org/resources/by/person/208575176?access=371, last accessed October 27, 2015.
 See Halper, Stefan, The Beijing Consensus: Legitimizing Authoritarianism in Our Time: Basic Books, 2012 and Bell, Daniel A., The China Model: Political Meritocracy and the Limits of Democracy: Princeton University Press, 2015.
 See David Shambaugh, “The Coming Chinese Crackup,” Wall Street Journal, March 6, 2015. See http://www.wsj.com/articles/the-coming-chinese-crack-up-1425659198, last accessed November 1, 2015. Dr. Shambaugh, who I studied under at George Washington University, predicts the beginning of the end for the Chinese Communist Party, and also notes that China’s economic elite is fleeing for the exits, which explains why EB-5 is so heavily dominated by investors from China.
 See Gabriel Wildau and Chris Giles “Beijing furthers efforts to halt slowdown” Financial Times, October 24-25, 2015, p.1 and Keira Lu Huang “China’s growth target never set in stone: premier” South China Morning Post, October 26, 2015, p.1
 During his October 2015 presentation at an IIUSA conference, State Department visa office official Charles Oppenheim presented data showing that Vietnamese citizens were issued 280 EB-5 visas for the period dating October 2014-September 2015 (the period of the US government’s 2015 fiscal year), a number over 200 percent higher than the third-highest producing EB-5 investor country of Taiwan (139 EB-5 visas issued for the same period). See http://member.iiusa.org/system/files/attachments/EB-5%20Visa%20Demand%20-%20An%20Update%20from%20the%20Department%20of%20State.pdf, last accessed November 1, 2015.
 See Laurie Burkitt, “China’s Leaders Scrap One-Child Policy,” The Wall Street Journal, October 30, 2015, p. A7. According to Ms. Burkitt, “China will abandon its one-child policy, perhaps the most notorious of the Communist Party’s intrusions into Chinese lives, amid a looming demographic crunch that threatens the long-term health of the world’s second-largest economy.”
 See https://www.cia.gov/library/publications/the-world-factbook/rankorder/2004rank.html, last accessed October 27, 2015. On a purchasing power parity (PPP) basis, China has a Gross Domestic Product (GDP) of $12,900 in 2014, which ranks China 113 out of 230 nations, just behind Macedonia, but just ahead of the Dominican Republic.
 Discussions with anonymous EB-5 marketing specialist in Vietnam.
 See “Long-Term Demographic Trends: Reshaping the Geopolitical Landscape,” p.47. https://www.cia.gov/library/reports/general-reports-1/Demo_Trends_For_Web.pdf, last accessed October 27, 2015.
 Chinese invasion of Vietnam has occurred numerous times in the last 2,000 years, with tensions persisting between the two countries today. See http://asiasociety.org/vietnam-0, last accessed November 1, 2015.
 See Jane Perlez, “Shadow of Brutal ’79 War Darkens Vietnam’s View of China Relations,” The New York Times, July 6, 2014, p. A4.
 ICEF Monitor. (2015, September 07). Challenges in Vietnamese higher education contributing to demand for study abroad. Retrieved from http://monitor.icef.com/2015/09/challenges-in-vietnamese-higher-education-contributing-to-demand-for-study-abroad/, last accessed September 15, 2015.
 Thu Ngan. (2014, August 6). Nhieu dai gia Viet quan tam dau tu dinh cu My. See http://kinhdoanh.vnexpress.net/tin-tuc/doanh-nghiep/nhieu-dai-gia-viet-quan-tam-dau-tu-dinh-cu-my-3026544.html, last accessed September 15, 2015.
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