After China Shuts the Door, What Becomes of You?

Li Chengpeng (李承鹏)

The door has truly slammed shut. I just heard that China now has something people are calling an “exit tax.”

I looked into it. An exit tax is a special tax regime imposed on people who give up their citizenship or long-term residency. The United States, Canada, Germany, France, Australia, and Britain all have comparable systems. But they come with strict legal procedures and clear standards for taxation. In some cases, the tax applies only to corporate shares rather than an individual’s entire assets.

On paper, China does not have an “exit tax.” But in practice, the revised Individual Income Tax Law that took effect in 2019 added Article 13: “Where a taxpayer cancels his or her Chinese household registration because of emigration abroad, the taxpayer shall settle all taxes before the cancellation of household registration.” This means that before leaving, the taxpayer must file with the tax authorities, pay all outstanding taxes, and, where applicable, pay late fees and penalties.

And now the net is closing in so tightly that it is becoming very difficult to escape. In July 2026, the Ministry of Finance issued new rules on the individual income taxation of offshore trusts. The rules make clear that when a tax resident becomes a nonresident, a mandatory tax settlement is required. Public-security and tax authorities are also being brought into a stricter monitoring system, with particular attention paid to people who “emigrate without moving their assets.” The aim is full look-through tax enforcement.

This is the predicament now facing China’s middle class and everyone above it. When people first made their money, these rules did not exist. Then Article 13 was added to the Individual Income Tax Law in 2019. Seven years later, in 2026, the machinery is finally being put fully into operation. For seven years, people went on dreaming about “poetry and distant places,” telling themselves: Surely it won’t come to that. Surely the state won’t do anything to me.

How naïve. So what is your fate now?

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Here is the latest development. The combination of measures keeps coming. The Chinese government has begun levying individual income tax on mainland residents who purchase insurance policies in Hong Kong. Tax authorities in Beijing and Hangzhou have already imposed a 20 percent individual income tax on policy dividends and interest earned on prepaid premiums.

As soon as the news broke, shares of the internationally known insurer Prudential plunged as much as 13 percent during trading, while HSBC fell 6 percent. People in the industry have questioned the legal basis for the move. China’s current individual income tax law does not explicitly list “insurance-policy dividends” as a taxable category, they argue, so treating them as ordinary “dividends and profit distributions” may lack a clear basis in higher-level law.

But these objections are weak. As the Chinese government increasingly closes the country off while pursuing taxes on overseas income, Chinese investors are finding that there may be no way to walk away untouched. The next step will likely be a more aggressive retrospective pursuit of taxes on income from domestic assets.

The gate is being shut so the dogs can be beaten inside it. Those who spent the past few years ignoring public affairs, concentrating only on making money and dreaming of “poetry and distant places,” should wake up.

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The Chinese state’s control over the free movement of ordinary people has a very long history. More than 2,300 years ago, Shang Yang (商鞅) wrote in The Book of Lord Shang (《商君书》): “If the people are not allowed to move about freely, they can be made ignorant.”

In plain language: keep ordinary people from moving around, and they will become easier to keep ignorant. He also argued that knowledgeable people should not be allowed to travel freely, because if they moved around and mixed with others, ignorant peasants might become wiser, making the state harder to govern.

So restrictions on movement were never simply about controlling people’s legs. They were about controlling their minds. Once people begin to move, they begin to learn. And once they become smarter, how is the ruler supposed to control them?

Shang Yang is often associated with five techniques for ruling the people: keeping them ignorant, weak, poor, exhausted, and uniform. In fact, a sixth should be added: keeping them locked in place. Shang Yang had six techniques of control.

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Ordinary Chinese people were allowed to leave the country only after the Anglo-French forces fought their way into China. Article V of the 1860 Convention of Peking between China and Britain (《中英北京条约》) explicitly established the right of ordinary Chinese people to travel abroad. In plain language, it meant this:

If Chinese people wished to go abroad, whether to Britain or another country, whether alone or with their whole families, they were free to do so. Once they boarded a British ship, they were not to be stopped. The original Chinese text used four characters: 毫无禁阻—“without any obstruction whatsoever.”

So there it is. The first time the legality of Chinese people traveling abroad was written into a legal document, it was because the British forced the Xianfeng Emperor (咸丰皇帝) to put it in writing at gunpoint.

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Chinese people have long lived with the illusion that the country’s leaders want to make the economy prosper because they want to please the people. But that assumption does not necessarily hold.

There is a political scientist named Bruce Bueno de Mesquita (布鲁斯·布恩诺·德·梅斯基塔) who saw through this problem with unusual clarity. In The Dictator’s Handbook (《独裁者手册》), he developed a cold-blooded framework known as selectorate theory. A ruler survives not by pleasing the population as a whole, but by keeping the smallest possible “winning coalition” satisfied. In other words, do not spend too much money improving the lives of ordinary people. Under an authoritarian system, citizens who are well fed, comfortably housed, and no longer dependent on what the ruler gives them can become dangerous.

When people are starving and close to revolt, then by all means develop the economy a little. Let Liu Yonghao (刘永好) raise pigs, let Liu Chuanzhi (柳传志) make computers, let Jack Ma (马云) build Taobao. But once you become big, strong, and successful enough to pose a threat to political control, then you have to be taken down.

That is what this latest closing of the country is about. Lock down the money. Lock down the technology. Lock down the people. A perfect closed loop. Your factory belongs to the state. Your company belongs to the state. Your money belongs to the state. You belong to the state. And your next generation belongs to the state as well.

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Chinese people have never truly enjoyed freedom of movement. From the travel certificate known as a yan (验) that Shang Yang’s system required for lodging, to the luyin (路引), or travel permits, of the Ming and Qing dynasties, to the work-unit introduction letters required after 1958, and on to today’s border-control watch lists, the instruments used to control our movement have changed over 2,300 years. Bamboo slips became pieces of paper. Paper became computer databases. Databases became AI facial recognition. But the underlying logic has not changed for a single day:

If you want to leave, you need my permission.

A PARTY that claims to have overthrown the old imperial order is still using the methods of emperors.

The principle could hardly be clearer. Yet after the new exit-and-entry regulations were announced, there were still plenty of idiotic takes. China’s public sphere has always resembled two skyscrapers rising into the clouds. Call one Building A and the other Building B. Those who think the new exit-and-entry rules violate basic human dignity live in Building A. Those who take pleasure in seeing the new rules punish wealthy people live in Building B. Let us hear what people in Building B have to say:

“I’m just an ordinary person. These rules are aimed at rich people with passports. Let them control them, arrest them, whatever. What does it have to do with me?” “If you haven’t done anything wrong, why are you afraid? Only people with guilty consciences are scared.” “I don’t have a passport and I don’t want to go abroad. China is so good—why leave? They should arrest everyone who wants to go abroad.”

Building B really is a remarkable structure. Then again, perhaps it is not so surprising. Some 900 million people in China have never been on an airplane, and 1.24 billion do not have passports.

From the 1950s through the end of the 1970s, nearly a million residents of mainland China risked drowning at sea, being eaten by sharks, or being shot by border guards as they desperately tried to escape to Hong Kong. The episode became known as the “Great Escape to Hong Kong” (大逃港).

In April 1978, Xi Zhongxun (习仲勋), on his way to take up a post in Guangdong, witnessed this mass flight firsthand. He said: “The problem is that our own living conditions are poor and we have been unable to solve it. How can we call these people illegal border crossers? These people are leaving the area, not fleeing the country. This is a contradiction among the people, not a contradiction between ourselves and the enemy. We cannot treat them as enemies.” He then gave an order: “Let them all go. We cannot simply arrest people. We must build up the mainland and make it a place they want to come back to.”

There was considerable humanity in Xi Zhongxun’s words. Yet forty-eight years later, under his son Xi Jinping (习近平), Li Qiang (李强) has promulgated the State Council Regulations on Exit and Entry Administration (《国务院关于出境入境管理的规定》), tightening controls just as another wave of people seeks to leave the country.

But there is a question. Back then, Chinese people fled because China was poor. Today China has the world’s second-largest GDP. So why are people trying to leave again?

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The State Council regulations state: “Persons who are not permitted to leave the country shall be promptly informed of the reason for the prohibition. In circumstances involving national security, criminal cases, and other such matters, the reason may be withheld.”

In theory, you should be told. In practice, you may not be.

Imagine that one day you are about to travel abroad. You slide your passport through the immigration counter. The young man behind the glass looks up at you and says coldly, “Go wait over there for a moment.”

Your heart suddenly starts pounding. You ask, “Why? Why won’t you let me through?”

He says, just as coldly, “I don’t know either.”

You explode. You start making calls, pulling connections, asking everyone you know why you are not being allowed through. But nobody tells you anything. You simply cannot get through. The immigration checkpoint begins to resemble Franz Kafka’s The Castle (《城堡》).

You want to enter the castle, but you never can. The only people you ever deal with are the lowest-level clerks in the castle. They do not know why. And even if they did, they would not tell you.

My motherland has an extraordinary literary quality. Even a new set of exit-and-entry regulations can become this damn Kafkaesque.

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“When China’s Iron Gate Closes, What Becomes of You?” (《中国的铁门关上，你的命运是什么》)

Whenever our country’s leaders become unhappy with another country, they can simply declare it a place of “the highest risk.” This may not be an objective description so much as rhetorical language. But rhetorical language can be far more destructive.

When I was a child in Xinjiang, there was a leader of the worker propaganda team named Old Liang (老梁). He could be especially destructive in this way. Often, when he denounced someone, he had not actually found any specific crime. The person might not have been a landlord, rich peasant, counterrevolutionary, bad element, or rightist. He might not have stolen corn from the commune or had an illicit affair. But at moments like this, Old Liang would leap onto a square table, point at the man, and shout:

“Him! His thinking is poisonous!”

And everyone would surge forward to denounce the poisonous man.

Nobody cared where the poison was, or whether it was snake venom or scorpion venom. What mattered was the infectious power of the word itself: “poisonous.”

If you accuse someone of a specific offense—say, “He stole a chicken”—people may start asking questions. How many chickens? Was it a rooster or a hen? But if you throw a vague label at someone—“bad element,” “bad character”—people can easily reach agreement inside a shapeless cloud of meaning.

Applied to an entire country, the phrase becomes something like an ideological nuclear bomb: “That country is high-risk. It’s poisonous.” Before long, even you begin wondering whether you should still go.

Of course, you may not be able to go even if you want to. Open your phone and look: flights to Japan have already been canceled in wave after wave, approaching the point of a complete shutdown.

Source: New Century (新世纪)