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Corruption, costs, and family: Chinese capital flight, 1984–2014

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  • Gunter, Frank R.

Abstract

Since 1984, the foreign debt of the Peoples' Republic of China has increased at a greater rate than would be explained by changes in the country's current account, foreign direct investment and reserve holdings. This pattern is consistent with large-scale outflow of financial capital, commonly referred to as capital flight. Since 2005, capital flight has accelerated reaching $425 billion (plus or minus $60 billion) in 2014 alone. This study provides three estimates for capital flight from China for the period 1984 through 2014 using both Cuddington's balance of payments and more inclusive residual measures. These measures are adjusted to reflect the legitimate assets of the Chinese banking industry, mis-invoicing of China's trade with its major trading partners (especially Hong Kong), exchange rate changes, and the failure of official debt data to capture certain bank transactions. Based on these estimates, it is concluded that capital controls have little long-term effect on the volume of capital flight, Hong Kong is increasingly a pipeline for capital flight from the mainland, and that ‘traditional’ explanations do not apply to China's capital flight over the last decade. Finally, corruption, transaction costs, and facilitating migration are considered as possible explanations of the recent acceleration of Chinese capital flight.

Suggested Citation

  • Gunter, Frank R., 2017. "Corruption, costs, and family: Chinese capital flight, 1984–2014," China Economic Review, Elsevier, vol. 43(C), pages 105-117.
  • Handle: RePEc:eee:chieco:v:43:y:2017:i:c:p:105-117
    DOI: 10.1016/j.chieco.2017.01.010
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    Cited by:

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    2. Wu, Bao & Wang, Qi & Fang, Chevy-Hanqing & Tsai, Fu-Sheng & Xia, Yuanze, 2022. "Capital flight for family? Exploring the moderating effects of social connections on capital outflow of family business," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 77(C).
    3. Yuk Ying Chang & Sudipto Dasgupta, 2023. "Escaping Air Pollution: Immigrants, Students, and Spillover Effects on Property Prices Abroad," Review of Finance, European Finance Association, vol. 27(5), pages 1699-1741.
    4. Peter J Buckley & L Jeremy Clegg & Hinrich Voss & Adam R Cross & Xin Liu & Ping Zheng, 2018. "A retrospective and agenda for future research on Chinese outward foreign direct investment," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 49(1), pages 4-23, January.
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    7. Nirmol Chandra Das & Mohammad Ashraful Ferdous Chowdhury & Md. Nazrul Islam, 2021. "Nonlinear Threshold Effects of Institutional Quality on Capital Flight: Insights From Bangladesh," International Journal of Asian Business and Information Management (IJABIM), IGI Global, vol. 12(1), pages 43-59, January.

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    More about this item

    Keywords

    Capital flight; China; Corruption; Transaction costs; Migration;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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