by Anh Nguyen and Alex Viniarsky | Mar 07, 2016

In this article, Anh Nguyen and Alex Viniarsky discuss a novel example of how funds can find their way out of China despite controls set up by Beijing to prevent capital flight.


In 2015, USD 1 trillion left China for countries such as Australia, the USA and the UK. One example of how these funds find a home is through the growth in foreign investments in Australia.




Source: Based on ABS catalogue 5352.0, last Updated: May 2015

Between 2005 and 2015, investment in Australia from China increased thirty-fold from $2.2 billion to $64.6 billion.

Under Chinese law, residents of China are able to transfer a maximum of USD 50,000 a year overseas. However, reports highlight the extremes to which some residents will go to work around these controls. A recent example of the novel ways in which funds from China are finding their way out of the country was reported in the Wall Street Journal in the case of a Chinese citizen wanting to fake a law suit with himself!
 
The scheme would work as follows:




Although cases of this nature are likely to be rare, it is a stark example of the various ways in which Chinese residents are circumventing the controls set up by Beijing. For Australian companies and professionals, it is also a reminder that it’s important to be alert to the particular risks of dealing with foreign businesses.