Beijing’s Strong Regulation Can’t Stop Chinese Capital Outflow; US Ultimately Benefits

A man walks on the bund in front of the financial district of Pudong in Shanghai, China, on March 9, 2016. Aly Song/Reuters

China has had a long-standing problem of cash leaving the country. Much of the outflow is the result of corrupt officials transferring state-owned assets overseas. Last month, China’s central bank released a report on monetary policy that says stronger supervision has been implemented. But China experts doubt that it can prevent the ongoing flight of capital.

The Report on the “Implementation of China’s Monetary Policy in the Fourth Quarter of 2021,” released on Feb. 11, states that it has achieved “new results” in “resolving major financial risks.” In addition to shutting down the foreign exchange trading platform on the internet, the Central Bank has increased the foreign exchange deposit reserve ratio of financial institutions twice in 2021 by 2 percentage points each time, in order to strengthen the management of foreign exchange liquidity.

Red Families and Underground Banks

According to Xie Tian, a Chinese Economics professor at South Carolina Business School, stronger supervision cannot fundamentally solve the problem of China’s capital flight.