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Investors moved US$600 bil. out of China last year: study

BEIJING -- Chinese investors evaded government controls to move more than US$600 billion out of the country last year and the outflow is increasing, fueling economic and political risks as communist leaders prepare for a handover of power, a Washington-based monitoring group says.

The study by Global Financial Integrity gives backing to anecdotal signs of huge, unreported movements of Chinese money out of the country. Experts say the outflows are driven by public frustration with a banking system that subsidizes state companies at the expense of savers and by businesses profiting from loopholes in the government's pervasive economic controls.

Chinese companies are widely believed to move money abroad both to invest and to "round trip" back into the country disguised as foreign investment to win tax breaks and other incentives. Chinese families move money abroad to gain a better return than they can from state banks that pay low deposit rates.

Last year's outflow was part of a US$3.8 trillion flood of capital that left China over 11 years, Global Financial Integrity said. It said the amount rose from US$172.6 billion in 2000 to US$602.9 billion in 2011.

The group said it was unclear how much of the money came from corruption or other crimes but it said the illicit outflow could aggravate economic and political strains by aiding tax evasion and widening China's sensitive wealth gap.

The study "raises serious questions about the stability of the Chinese economy," the group said in a statement.

"The social, political, and economic order is not sustainable in the long-run given such massive illicit outflows," said Dev Kar, the group's chief economist and a co-author of the report, in the statement.

Global Financial Integrity, a program of the Center for International Policy, studies illegal cross-border flows of money and promotes measures to stop them.

Some commentators have suggested the outflows reflect a loss of faith by China's financial elite in the communist government but others say much of the money is sent back into the country disguised as foreign investment.

"While the funds could be earned through bribery, kickbacks, or other illicit activities, they may well be earned through legitimate means," said Global Financial Integrity. "It is the transfer in contravention of capital controls or the nonpayment of applicable taxes that renders the funds illicit."

1 Comment
October 28, 2012    edann77@
Global Financial Integrity is lacking integrity. Their report should be classified as fictional or fantastical, rather than anything else. No doubt about net outflow in China for the past year or so and no doubt some of it is illicit, but US $600 billion is totally ridiculous. China's 2011 exports totaled about US $1.9 trillion and imports reached US $1.743 trillion, while GDP was about US $7.3 trillion. How can 16.5% of total value of exports and imports, or 8% of 2011 GDP be swindled out of the country and return as investments??! Total net profit for all Chinese companies doesn't even come close to US $600 billion.
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