Hundreds of Billions in Illicit Funds Flow into China

SHANGHAI—China’s State Administration of Foreign Exchange (SAFE) recently disclosed that in the first half of this year a large amount of international hot money1, roughly estimated at a few hundred billions dollars, has been flowing into China, Beijing-based said.

After examining the foreign currency flow and foreign exchange settlement in ten coastal cities and provinces of the country, SAFE found that inflow of illicit money had entered China’s foreign trade and investment. Statistics show that during the first half of this year, over US$100 billion international hot money made its way into China, the report revealed.

During the first quarter of the year, Chinese foreign exchange reserves increased by US$135.7 billion, yet China’s trade surplus reached only $46.4 billion, with the FDI (foreign direct investment) reaching only $15.9 billion. After deducting these two items, the net total of the newly increased foreign exchange reserves would be $73.4 billion.

In addition, data released in the first half of this year by the China Customs Office and the Ministry of Commerce shows that among the increased reserves, $120.9 billion from unknown sources have still not been identified.

Further data indicates that the international hot money may even continue flowing into mainland China through various channels for some time.

Note: [1] In economics, hot money, also called refugee capital, refers to funds that flow into a country and flow between financial markets at the highest possible interest rate.