Recently, it is rumored that foreign capital is being massively withdrawn from China having a huge impact on the economy. The Chinese Communist Party (CCP) has always denied this. It used an article published by its mouthpiece media People's Daily in August. Despite its attempt to deny the rumors, the article further uncovers some secret facts about the CCP's economy. Let's see the following report. On August 12th, the People's Daily published an article titled "Foreign Investors Are Not Massively Retreating from China". The article uses the CCP's Ministry of Commerce statistics. It claims that the total number of new foreign companies dropped by 17.31% this June. However foreign direct investment (FDI) has increased by 20.12% during the same period. Other statistics from the Ministry of Commerce show that, between January and July 2013, newly registered companies dropped by 7.68%, but FDI has increased by 7.09%. According to charts in the People's Daily, the top ten source locations contributed to 92% of total foreign investments in China between January and June of 2013. Among them capital from Hong Kong contributed to 39.7 billion US dollars, or 65% of the total. Singapore ranks third, contributing 3.3 billion dollars, or 5% of the total. The United States, Germany, Netherland and France only contributed 4.2 billion dollars, or 6.8% in total. The distribution of foreign capital sources is very unusual, but why is it like that? US-based Chinese economist He Qinglian commented that, although the CCP claims to rank second in absorbing foreign capitals in the world, many of them are fake ones which originally flowed out from China. Feng Xingyuan, deputy director, Unirule Institute of Economics, Beijing: "There have been more Chinese business owners who emigrate first and then invest their money back into China. Others stay in China with foreign passports or green cards. Some also move their money out of China first before investing it back." Feng Xingyuan said Mainland China has many preferential policies for foreign investments, especially in economic development zones, so many emigrant Chinese entrepreneurs went back to China just to use the conditions to make profit. A US-based Chinese magazine "China in Perspective" recently published an article by Cheng Xiaonong. It revealed that Hong Kong, Singapore and some other areas are popular choices for money laundering from the Mainland. Most investments from those places are originally China's domestic capitals with a foreign-like appearance. Global Financial Integrity is a research organzation located in Washington D.C.. According to its December report about illicit financial flows , China's illicit outflow of capitals was about 23.6 trillion Yuan between 2000 and 2011, accounting for about 50% of the total illicit financial outflow from developing countries. Yan Lixin, an expert in money-laundering, estimated that China's money laundered annually has exceeded one trillion. Most of the outflows either directly go into Hong Kong or pass through there as a conduit. On December 27th, 2012, Bloomberg published an article: "Heirs of Mao's Comrades Rise as New Capitalist Nobility". The article said that, through investigation at least 18 descendants of the CCP's eight most senior leaders own or run entities linked to companies registered offshore. It includes the British Virgin Islands and the Cayman Islands. According to Gong Shengli, the chief researcher of Beijing National Conditions Inside Reference, China's 120 biggest state-owned companies are all highly-profitable monopolies. For example, the price of the same car is more expensive in China than in America by at least one-third. This makes China's market a very good place for speculative activities. Gong further commented that, most state-owned monopolies are controlled by the CCP princelings. They make profits by changing of capitals, which leads to the inflow and outflow of capitals in China. Gong Shengli: "Li Keqiang has repeatedly mentioned the opening-up policy four times in only nine days. He continues to talk about how China's economy should move forward. This leaks the message that, there are some secret fears within the operation of capitals or markets in China." Global Financial Integrity's report revealed that a lot of illicit money first left China as recorded FDI in off-shore financial pivots like Hong Kong and British Virgin Islands; then they came back to Mainland China as FDI from those places. As a summary, the report believes such a complex money laundering scheme is used by Chinese high net worth individuals to secretly accumulate wealth. He Qinglian commented that, among the huge amount of foreign capitals absorbed into China over years, over 70% are indeed laundered domestic ones.

• published: 16 Sep 2013
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