HK FDI shows China cash laundering

PUBLISHED : Thursday, 19 April, 2012, 12:00am
UPDATED : Thursday, 19 April, 2012, 12:00am


China posted a fifth straight monthly drop in foreign direct investment (FDI,) further denting hopes that the country will remain a bright spot amid the troubled global economy.

SCMP, April 18

Idon't know much about denting hopes but I am fairly sure that this latest release of statistics will not dent much else.

For starters, there is always that reliability thing in figures published out of Beijing.

The FDI series to which our report referred is produced by the Ministry of Commerce (Mofcom), and indeed it shows that the utilised FDI inflows of the five months to March were less than in the same months of the previous year.

As my first chart reveals, however, the trend in these Mofcom figures relative to gross domestic product has been steadily down for almost 20 years and, at the equivalent only about 1.5 per cent of GDP at present, is hardly worth even a yawn.

But back to that reliability thing. Take your figures instead from the People's Bank of China (PBOC) and you get a different picture. It's now 3 per cent of GDP and this has been relatively consistent over the last 20 years.

Before I bore you any further with this recitation of numbers, it is time to name the source of most of them. That would be GIGO - garbage in, garbage out.

Maybe there is some way of reconciling these statistical conflicts but I'm not sure there is, and I certainly can't do it myself.

The only general agreement I can see among them in this case is that foreign investment is not as big a prop to China's economy as many people think it is, and certainly not enough to make a bright spot amid anything.

OK, so that was a morning spent over investment spreadsheets to generate a damp squib from what I hoped would be a decent bang. I did chance across an interesting angle, however.

Did you know that direct investment inflows into Hong Kong amount to 41 per cent of our GDP? It's fact, says our Census and Statistics Department.

Our small dot on the map takes in about half of what all of the immensity of the mainland attracts.

And did you know that while foreigners just love investment in Hong Kong, we ourselves, the residents of Hong Kong, shun it mightily? It's fact, says our Census and Statistics Department.

FDI outflows from Hong Kong amount to 44 per cent of GDP, even more than inflows. The second chart shows you just how odd Hong Kong is on this measure compared with some other regional economies and with Britain and the United States.

The answer to this puzzle is obviously that we are just a transit camp for money going in and out of the mainland.

Your average savvy industrialist across the border funds his capital investment with his earnings from exports, but not directly.

First, he books these exports out at cost, thus evading tax in the mainland, then he books his profits abroad and repatriates the money as foreign investment so that he can more easily sneak it out again from under the noses of the authorities.

It is, of course, straight money laundering - a form of financial enterprise on which our economy so crucially relies that we have found it necessary to make a big show of innocence recently by enacting stiff new laws against money laundering.

Ain't hypocrisy wonderful?

And it makes a complete mockery of any figures on foreign investment in China.

The money is not really foreign at all. Although it may be foreign-controlled, it is just a more efficient way of reinvesting earnings.

But why not? It works and how else can you make an industrial business work in what is still a command economy?