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Jake Van Der Kamp

Beijing has cranked up its campaign against the laundering of illicit cash through Macau casinos by signing a landmark pact that will bring unprecedented levels of cooperation between the central bank and the city's financial regulators …
… It has also led to speculation similar moves might be considered for Hong Kong.
Sunday Morning Post
August 23
Stop worrying. We don't have any casinos here and so we're absolutely clean. There is no reason why Beijing should want to get tough on us, too.
But let's put things into perspective. Gross casino revenue in Macau in the first half was HK$118 billion, already about 30 per cent down from last year. We shall double it and say the dubious cash flow Beijing is looking at in Macau runs at HK$236 billion a year.
Now for Hong Kong. More than 98 per cent of our exports go out as re-exports, mostly into and out of the mainland. Re-exports is supposed to mean that there is some minimal amount of work done here.
There is not. The only change is in the paperwork in that the stated value of these goods magically rises between the time they cross the land border and the time they are loaded on board ship.
This is very convenient for the exporter as it allows him to declare a low export value to the mainland taxman and thus avoid taxes on the mainland. He also avoids Hong Kong tax on this magical improvement in value in Hong Kong as our taxman recognises that no work was done here.
Our statisticians are somewhat slow in tracking all this but, last seen, the average magical improvement in value was 16.3 per cent. Our statisticians keep this magic obscure by calling it rate of re-export margin.
Some margin. At 16.3 per cent of an annual HK$3.6 trillion in re-exports, it amounts at present to HK$590 billion a year, more than twice as much as Macau's gross annual casino revenues.
And now let us call it what it is. It's called money laundering. It is the proceeds of tax evasion, which is a crime.

But we do even better than this. As the chart shows, both inflows to and outflows from Hong Kong of foreign direct investment have long been running at rising, very high, and almost matched levels.
We now have a new record here. On each side, inflow and outflow, this flow is running at about HK$1.2 trillion a year, which is the equivalent of more than 50 per cent of gross domestic product. This is not just much higher than anywhere else in the world, but higher by an order of magnitude.
Very odd indeed, and odder yet if one considers that direct foreign investment inflow would be classified in the GDP accounts as gross fixed capital formation and yet the GDP accounts show only half this figure.
Quick. Call the Nobel Prize committee. Hong Kong has proven a dramatic new mathematical truth - two equals one.
Or perhaps what we have here is rich mainlanders and corporations investing their export earnings (some of it that magical re-export margin) but wishing to hide its true origins from Beijing by doing it through Hong Kong and disguising it as legitimate foreign investment.
Let us again call it what it is. It is called money laundering, cleaning up and hiding a stream of income so that Beijing will not tax it, seize it or prevent it from leaving the mainland again. And it is more than five times as big a stream as Macau's gross casino revenues.
But it is not done through casinos, you see, and therefore it is not corruption and we need not worry.


The tale of murkiness that is the Lok Ma Chau Loop

China refusal to apologise for CCTV blackface skit all wrong

Plug Hong Kong Disney’s bottomless cash sinkhole forever and ever, and use its magic land for homes

China’s got a trade problem that can’t be solved by Belt and Road

Jake's View

Hong Kong gets around corruption clampdown through re-export trick

Gross casino revenue in Macau in the first half was HK$118 billion, already about 30 per cent down from last year. Photo: Dickson Lee

Business

Money

Opinion

Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


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.css-1m2rp1p{color:#34b8b5;}Jake's View | Hong Kong gets around corruption clampdown through re-export trick

Jake's View | Hong Kong gets around corruption clampdown through re-export trick