CAPITAL FLIGHT FROM THE PEOPLES-REPUBLIC-OF-CHINA - 1984-1994

Since 1985, the foreign debt of the Peoples' Republic of China has inc reased at a greater rate then would be explained by changes in the cou ntry's current account, foreign direct investment and reserve holdings . This pattern is consistent with the large scale outflow of financial capital, commonly referred to as capital flight. This study provides a range of estimates for capital flight from the PRC for the period 19 84 through 1994 using both Cuddington's balance of payments and the re sidual measures. These measures are adjusted to reflect the legitimate assets of the PRC banking industry, mis-invoicing of PRC trade with i ts major trading partners (especially Hong Kong), and the failure of o fficial debt data to capture certain bank transactions. The results ar e consistent with the view that a combination of high domestic financi al transactions costs, inappropriate exchange rates and political unce rtainty continue to result in large scale capital flight from China.