Financial Transparency Coalition

Global Financial Integrity’s new report, Illicit Financial Flows from China and the Role of Trade Misinvoicing, was released yesterday. It found that China lost $3.79 trillion–an astonishingly high number–between 2000 and 2011 to illicit financial flows. In just 2011, China lost almost $600 billion. These outflows are the proceeds of crime, corruption, and tax evasion, and threaten Chinese social stability. The report first debuted exclusively in this week’s issue of The Economist.

The report also analyzed trade mispricing between the United States and China, finding that as much as $72 billion flows out of China to the United States every year.

In the words of GFI Lead Economist Dev Kar, ““The Chinese economy is a ticking time bomb. The social, political, and economic order is not sustainable in the long-run given such massive illicit outflows.”

Raymond Baker, Director of Global Financial Integrity and the Task Force, wrote about the problem that illicit financial flows poses for China, and how it could affect the rest of the world in the Huffington Post,

China has seen massive, world-changing, economic growth over the past three decades. However, corruption is undermining much of this growth. The infrastructure that China is building right now should drive growth, and therefore raise living standards for the Chinese people for a century to come. However, many of the brand new bridges, roads, and modern buildings in China have been plagued by shoddy quality and massive amounts of corruption. Our research suggests that much of this money is flowing out of China.

I spent most of my professional life as an entrepreneur in Nigeria, and lived there for 15 years. Despite massive oil wealth and a vibrant, young population, 45% of the population lives below the poverty line. Per-capita GDP has barely risen since I first set foot there in the 1960s. I know far too many people living worse off today than they did decades ago. This is not because the Nigerian economy lacks promise–it has huge oil exports, and the country is filled with good, ambitious, entrepreneurial people–but because crime, corruption, and tax evasion have torn the country apart.

When China is growing at close to 10% every year, China’s median citizen sees their life improving despite endemic corruption and illicit outflows. However, there are serious questions for the political and social stability of China’s economy if growth slows. Will the median citizen continue to tolerate obvious and tragic corruption on the scale that we are seeing when more modest growth is not improving their living standards? When we say that illicit flows drive inequality, it is because money moved illegally out of the economy hurts your average person. That money can’t be spent on schools, infrastructure or basic services. To make matters worse, our prior research finds that illicit flows drive underground economies, resulting in more organized crime, smuggling, and other factors that undermine the Chinese economy.

You can read the whole post here, and access the GFI report here.