Three times over the past 10 years annual inflows and outflows both exceeded HK$2 trillion. Photo: SHUTTERSTOCK
Jake's View
by Jake Van Der Kamp
Jake's View
by Jake Van Der Kamp

Money laundering and the fuss over ATM withdrawals in Hong Kong

Total capital inflows to Hong Kong almost perfectly matched capital outflows from the city

Hong Kong banks have been hit by an unprecedented HK$20 billion per month surge in suspicious ATM withdrawals, exposing a loophole that could deal a blow to Beijing’s battle against illicit capital flight via its notorious underground banking system.

SCMP, January 26

Pardon me if you think the two charts here are only updated versions of ones I have earlier shown in this column. They are. But what they reveal is worth emphasising.

The red line on the first chart takes a 12-month running total of all capital inflows to Hong Kong from abroad (direct investment, portfolio, derivative, loan and all others) and shows them as a percentage of our gross domestic product. The blue line does the same thing for all capital outflows from Hong Kong.
Graphic: SMP

Two things immediately stand out here. The first is that the two are almost perfectly matched. At all times almost exactly as much flows in as flows out again.

The second is that these flows are enormous. Look at the left-hand scale. On three occasions over the last 10 years, annual inflows and outflows both exceeded HK$2 trillion or more than 100 per cent of GDP.

Think again about how very odd this is. What these official balance of payments statistics say is that three times over the last 10 years foreigners had so much confidence in the Hong Kong economy that they invested more money here than the value of all of the goods and services Hong Kong produced that year.

Money launderers stink up Hong Kong’s enforcement charade

At the same time, say the figures, Hong Kong individuals and corporations had so little confidence in Hong Kong that the amount of money they took out of the economy and invested abroad was more than the value of all the goods and services they produced that year.

What is more, these enormous swings of foreign confidence and domestic non-confidence coincided almost exactly in exactly matched strength.

Of course, it’s all nonsense. What we have here is hard evidence of the money laundering heart of our economy. This is mainland money cleaning itself up in Hong Kong either on its way abroad or returning to the mainland and wanting to pretend that it is all foreign investment.

Record land sale more likely a case of mainland capital flight

It is only meant to be declared at most as pass-through money, not investment in or out of Hong Kong, but then this would defeat the purpose of laundering it here and disguising its somewhat dubious nature. For contrast, look at the second chart of how these in and out investment trends look in Thailand. You do not get the same perfect matching and, as a percentage of GDP, the figures are less than a tenth of Hong Kong’s. Thailand’s is real investment. Hong Kong’s is not.

So why the fuss about HK$20 billion a month of ATM money laundering here when we routinely do eight times as much and no one sniffs?

But hush. It’s our livelihood. Don’t tell anyone.