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Illicit financial flows in China _ Ha Thu Luong

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Illicit Financial Flows (IFFs) is a very important issue of developing countries because IFFs directly contributes as a source for public domestic financing and indirectly affects investment, interest rates and inflation. There was an upward trend of IFFs in developing countries from 2003 to 2012 according to Global Financial Integrity 2014. China was the country with the highest IFFs in the world. This problem caused China a huge loss with 1.25 trillion USD over ten years. Therefore solving IFFs is a crucial task for Chinese Government. However, this country is facing with some obstacles, such as: rising inequality, weak controls or high level of corruption. In my opinion, I would like to suggest some solutions for Chinese government, including: setting up new regulations to remove commercial tax evasion, criminal activities, public corruption; Increasing Citizen Engagement by raising trust in public institutions, avoiding inequality between citizens; curtailing the flow of dirty money by reforming customs and trade protocols; learning from some successful examples of solving IFFs Issue, e.g.: Bangladesh to get positive results.

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Illicit financial flows in China _ Ha Thu Luong

  1. 1. Illicit Financial Flows in China Presented by Ha Thu Luong
  2. 2. What is illicit financial flows?  Illicit Financial Flows (IFFs) is “money illegally earned, transferred or used,” with money understood as funds or assets. (World Bank 2015)  2 main areas: • Proceeds of criminal activities. • Legally generated revenue and income that become illegal either because of their use.
  3. 3. IFFs’ effects on developing countries?  Direct: IFFs as an important source of public domestic financing for development goals.  Indirect: IFFs affect investment, interest rates and inflation. A crucial issue since if we solve it, development process will be improved.
  4. 4. Illicit Financial Flows from Developing Countries: An Upward Trend
  5. 5. Illicit Financial Flows in China from 2003 to 2012  China was the country with highest IFFs in the world (Global Financial Integrity’s Report 2014).  Hit $249.57 billion in 2012.  Led in the unsanctioned outflows in almost years during that period.
  6. 6. Source: Global Financial Integrity (GFI)
  7. 7. Why should China focus on IFFs?  Cumulative loss from China over 10 years (2003- 2012) totaled $1.25 trillion.  IFFs was equivalent to 11.1% of GDP.  Up to 47% of all illicit financial flows from developing countries between 2001 and 2010 to China. Therefore, solving illicit financial flows is an urgent task for Chinese Government. Source: Global Financial Integrity (GFI) Reports
  8. 8. Obstacles to solve IFFs Issue in China  Rising Inequality  Illicit Money comes back to country in the form of foreign direct investment  High level of corruption  Weak controls from Government
  9. 9. Suggestions to Solve IFFs Issue in China  Setting up new regulations to remove commercial tax evasion, criminal activities, public corruption.  Increasing Citizen Engagement by raising trust in public institutions, avoiding inequality between citizens.  Curtailing the flow of dirty money by reforming customs and trade protocols.  Learning from some successful examples of solving IFFs Issue, e.g.: Bangladesh to get positive results.
  10. 10. Bibliography  Global Financial Integrity, Illicit Financial Flows from Developing Countries: 2003-2012  Stella Dawson, Dirty money costs developing world $6 trillion, led by China: report. Retrieved from: http://www.reuters.com/article/us-funds-global- illicit- idUSBRE8BH00220121218#UkpkEZpIgP1TpCZH.97  Global Financial Integrity, Illicit Financial Flows from China and the Role of Trade Misinvoicing  Gabriel Wildau, Analysis: Spectre of capital flight slows China FX reform drive. Retrieved from: http://www.reuters.com/article/us-china-economy- idUSBRE8BI1GR20121219#IPijEkZeLCyzhX4K.99

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