At the same time, the group also found that a significant part of the illicit outflows from China is “round-tripped” back to the country as recorded foreign direct investment, disguised to win tax breaks and other incentives from the government.
In one example, the group found that the British Virgin Islands accounted for $213.7 billion in official investment in China in 2010, despite having a population of just 28,000.
The authors of the report, Illicit Financial Flows from China and the Role of Trade Misinvoicing, wrote:
The report also said that 86 percent of the money moved abroad, or $3.2 trillion, was moved out of China through "trade misinvoicing," under which Chinese companies arrange with foreign suppliers to overcharge for imported goods and deposit the extra money abroad.
The outflows are a reflection of widespread frustration and a loss of faith in China’s financial elite, as well as the central government, which channels most bank lending and other benefits to state-owned companies at the expense of savers and entrepreneurs.
Illicit financial flows have been shown to exacerbate inequality and corruption, two of the biggest challenges facing China today.
In a statement, the group said the findings “raises serious questions about the stability of the Chinese economy.”
Dev Kar, chief economist and co-author of the report, said: