People’s Republic of China’s Round-Tripping FDI Scale, Causes and.pdf

People’s Republic of China’s Round-Tripping FDI: Scale, Causes and Implications Geng XIAO July 2004 1. Introduction There is no doubt that part of People’s Republic of China (PRC)’s FDI inflows belongs to the return of the Chinese capital that has gone aboard escaping the foreign exchange control. The World Bank and other agencies and experts have estimated that the scale of this round tripping could be as high as a quarter of the total FDI inflows into PRC (see World Bank 2002). But the World Bank did not provide clear definition on round tripping FDI and did not explain its estimation method. This paper attempts to fill this gap in the literature by providing an estimation of the overall scale of PRC’s round tripping FDI with detailed description on the methods and assumptions. The paper also clarifies a few conceptual issues related to the different types of round tripping FDI and their measurement problems. A useful study of PRC’s round tripping FDI needs to have both the breath and depth that can capture and piece together the underlying real picture of the unique pattern of capital flows from the incomplete and imperfect statistics and existing theories. Because of the inconsistence and fragmentation of FDI statistics across different sources (for example, the Mainland PRC, Hong Kong, China SAR, and OECD countries) and the intrinsic secrecy nature of the round-tripping capital, it is almost impossible to obtain a direct and accurate measure on the scale of the round-tripping FDI. Hence, the results here should be viewed very much like a sketch of a suspect put forward by a detective who has attempted to piece together the available information about the suspect into a recognizable sketch. This rough sketch however could provide a very useful framework for more informed debates and research about many related policy issues.