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Globe Editorial

China's capital controls lead to corruption Add to ...

There is a perverse synergy between corruption and capital controls. A Chinese central-bank report - inadvertently and temporarily made public - has concluded that about 17,000 escaping government officials spirited $124-billion out of the country over the course of 15 years.

The rulers of China are well aware that corruption among officials undermines their legitimacy in the eyes of the people - this and the danger of steep increases in the price of rice and cooking oil are their greatest worries. The regime does not wish to become a kleptocracy.

The 67-page report, based on research by the Chinese Academy of Social Sciences, won a prize, which is why it was briefly posted on the website of the People's Bank of China.

Canada is one of the favourite destinations of the absconders, though the United States is in the lead for high-level officials; low-ranking ones tend to stay in East Asia, going to countries such as Malaysia, Thailand and Mongolia.

The techniques for smuggling unjustly acquired wealth out of China include large credit-card withdrawals overseas, fraudulent trade documents and money-laundering through casinos.

The temptation to export the fruits of corruption would be less if Chinese capital controls - which are tied in with the very restricted convertibility of the still undervalued renminbi - did not fix the maximum annual remittance abroad at $50,000 per person; moreover, any cross-border transfer of more than $10,000 has to be reported.

China should move toward granting its citizens freedom to invest in foreign countries - as well as drawing a clearer, harder line between the state and business. Capital controls are a burden on individuals' ability to save. None of this justifies bribe-taking or influence-peddling, but it makes these crimes all the more attractive.

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