China illegal capital outflow raises expectations of yuan devaluation: Xinhua

SHANGHAI (AFX-ASIA) - China's illegal capital outflow has become increasingly serious in recent years, and this raises expectations for a devaluation of the yuan, while making it more difficult for the country to 

prevent a financial crisis, a Xinhua News Agency report said.

The report, published in the Guangzhou Daily, said the amount of illegal capital outflow was relatively limited in the 1980s, but the problem has become more serious since then.

It said the "errors and emissions" item in the country's balance of payments is an indicator of the size of illegal outflow, noting that the errors and emissions amounted to 330 mln usd in 1989, 9.8 bln usd in 1994 and 

16.9 bln usd in 1997.

The total value of errors and emissions between 1982-1999 was 130 bln usd, or about 35 pct of the value of foreign direct investment in China during the same period.

The report cited Bank of China economist Wang Yuanlong as saying that the actual amount of illegal outflow is definitely much larger than the figures recorded in "errors and emissions".

This outflow has not attracted much attention because the country still receives a large injection of capital each year, it said.

Funds being expatriated via illegal means include money accumulated by officials via corruption and the sale of state assets, money earned via smuggling and fraud, and private money earned legally.

As government has strengthened its crackdown on corruption, individuals with illegally-sourced funds have felt under greater pressure to expatriate this money, it said.

As this money leaves the country, it not only causes an ouflow of state assets, but also raises expectations for a devaluation of the yuan and makes it more difficult to prevent a financial crisis.

It could even be the direct cause of a financial crisis, the report said.

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