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China Capital Flight: Business Creativity vs. Government Directives

Capital flight from China is soaring as business is expecting drastic measures from the government. Since direct capital transfers are restricted, businesses become creative in their mission of saving hard (or easily) earned money. The Market Watch reports on China capital flight and struggle between individual enterprise and the Communist regime:

“A Deutsche Bank economist estimates some $328 billion in capital was illegally moved out of China in a span of six months via one of the oldest methods known to mankind: cooking the books.

Fears about accelerated capital flight from China are on the rise amid fears that Chinese authorities could move to aggressively weaken the currency to prop up flagging economic growth, but this is the first time that these worries have been closely estimated.

Zhiwei Zhang, chief economist for China at Deutsche Bank, said that the funds were likely siphoned off by misreporting imports and exports in an effort to dodge the government’s strict capital controls…

“According to official banking statistics, importers in China paid $2.2 trillion for goods imports in 2015, yet customs recorded only $1.7 trillion of such imports,” he said in a report…

china capital flight

The total that exited the country by this alleged sleight of hand is equivalent to roughly 78% of the decline in China’s foreign exchange reserves which fell to $3.23 trillion at the end of January from $3.73 trillion at the end of July.”

This is also one of the reason why massive monetary interventions to prop up currency don’t work in the long run. The money ends up in pockets of currency traders betting against the currency when it is finally devalued. Any bubble that was blown up, eventually bursts.

Read the full article:

Billions in capital were moved out of China right under the government’s nose