Chinese capital flight 3.0 three new nethods of capital flight are testing the regulators

CHINA ADVISORY - Report 12 Dec 2017 by Andrew Collier

For the ninth straight month, in October China’s foreign exchange reserves continued to rise, reaching US$3.11trn. SDR-denominated foreign exchange reserves also bounced back to a level above $2.2trn. After witnessing China’s crackdown on capital flight in 2017, and with stable foreign exchange reserves, most analysts expected the central bank to loosen capital controls in 2018. We think this view is overly optimistic. On the contrary, our interviews and local analysis suggests that capital flight is accelerating.

While previous rounds of capital flight evaded restrictions through false invoicing and overly inflated service fees, we believe there are now three new avenues that aggressive traders are taking advantage of: Macau gaming junkets, Hong Kong insurance products, and gold trading. In this report we discuss gaming and gold, leaving insurance for our next report.

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