Chinese regulators crackdown on capital flight to Caribbean havens
Tuesday, August 10, 2004
BEIJING, China (AFP): China's financial and
securities watchdogs have launched a crackdown on the illegal flight of
capital via Caribbean financial centers such as the British Virgin Islands and
the Cayman Islands, state press reported Monday.
The central bank, the State Administration of Foreign Exchange, the China
Banking Regulatory Commission and the China Securities Regulatory Commission,
have banded together to tackle the issue, the 21st Century Business Herald
reported. A Ministry of Commerce report has
led to tighter regulatory efforts after it singled out places such as the
Virgin Islands and Cayman Islands as transit points for capital, it said.
Investment flowing from the Virgin Islands totaled 9.4 billion dollars in
1999, and during the first quarter of this year has hit 1.75 billion dollars,
one of China's biggest overseas investors.
Although offshore financing centers have helped bring massive funds into
China, they also have a significantly negative impact on the economy by
allowing corrupt businesses and government officials to channel out illegal
money, the ministry report said. About 4,000
former officials are believed to have fled China after embezzling over five
billion dollars, the Xinhua news agency said.
However, that figure is believed to be understated, with some media reports
estimating that officials have defrauded the country of a staggering 53
billion dollars, the newspaper report said.
China's dual tax system to encourage foreign firms to set up operations on the
mainland is partly to blame. Foreign-funded
companies enjoy a range of preferential tax policies including an average 17
percent corporate tax rate compared with around 33 percent for domestic
companies.
Seeking the same tax advantages or to more
easily win an overseas listing many Chinese companies try to register their
companies in offshore financing centers, the ministry added.
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