Is Money Flowing OUT of China? or IN?

IS CAPITAL fleeing China? The recent crackdown on official corruption might suggest that fat cats are busy whisking their money out of the country to avoid scrutiny. That impression is strengthened by the apparently endless flow of Chinese money into luxury goods, penthouses and other trophies in London, New York and Paris.

Lots of money is undoubtedly leaving China, despite the country’s strict currency controls. However, a close look at the official figures suggests that, on balance, more hot money (meaning capital flows other than foreign direct investment, both above board and under the table) has been flowing in (see chart).

A new study by Global Financial Integrity (GFI), a research firm, highlights one popular way illicit flows enter the mainland (previous reports by GFI have highlighted dodgy ways cash is taken out of China). It claims that well over $400 billion has poured into China since 2006 outside the official channels, with inflows in the first quarter of 2013 alone topping $50 billion. GFI believes exporters on the mainland exaggerate the prices of goods sent to Hong Kong in order to evade China’s strict currency controls and bring back pots of cash.

link.