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Tue, Aug 10, 2004 - Page 12 News List

China gets tough on capital flows

AFP , Beijing

China's financial and securities watchdogs have launched a crackdown on the illegal flight of capital via offshore financing centers such as the British Virgin Islands and Cayman Islands, state press reported yesterday.

The central bank, the State Administration of Foreign Exchange, the China Banking Regulatory Commission and the China Securities Regulatory Commission, have banded together to tackle the issue, the 21st Century Business Herald reported.

A Ministry of Commerce report has led to tighter regulatory efforts after it singled out places such as the Virgin Islands and Cayman Islands as transit points for capital, it said.

Investment flowing from the Virgin Islands totaled US$9.4 billion in 1999, and during the first quarter of this year has hit US$1.75 billion, making it one of China's biggest overseas investors.

Although offshore financing centers have helped bring massive funds into China, they also have a significantly negative impact on the economy by allowing corrupt businesses and government officials to channel out illegal money, the ministry report said.

About 4,000 former officials are believed to have fled China after embezzling over US$5 billion, the Xinhua news agency said.

However, that figure is believed to be understated, with some media reports estimating that officials have defrauded the country of a staggering US$53 billion, the newspaper report said.

China's dual tax system to encourage foreign firms to set up operations in the country is partly to blame.

Foreign-funded companies enjoy a range of preferential tax policies including an average 17 percent corporate tax rate, compared with around 33 percent for domestic companies.

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