Illicit Capital

This project uses the term “illicit capital” (used as flexible capital previously) to explain the surge of Chinese capital into seemingly unprofitable sectors. The International Monetary Fund defines illicit capital as the illegal movement of financial flows through money laundering, the financing of and profits from criminal activities, or phantom FDI. Institutions have estimated phantom FDI, which refers to investments in corporate shells in tax havens, at $15 trillion. Against this backdrop, this project investigates the mobility and development ramifications of Chinese illicit capital. China features an enormous and growing number of wealthy party-state and private elites due to the country’s rise as a global economic power and overcapacity. However, recent political centralization under Xi pushes the Chinese elites to launder their money in offshore financial centers. These financial flows eventually are deposited in a variety of “gray sectors,” such as online gambling, flesh trade, or wildlife smuggling. Illicit capital has enormous development ramifications. However, the study of Chinese illicit capital is often neglected not only because of the focus on Chinese state capital and major private firms, but also because of the practical difficulties involved in tracing illicit inflows.
I have already started researching this project and published some preliminary findings. For instance, my paper in Development and Change finds that online gambling firms launder their money through opaquely operated games that allow the transfer of capital across borders. Since Rodrigo Duterte became the President, Chinese capital massively expanded into the Philippines. However, Chinese capital simply expanded into purchasing to acquire physical assets and small businesses despite having little-to-no profit gain. As figure 1 illustrates below, Chinese capital disproportionally goes to speculative sectors that could evade regulatory structures. Additionally, my publication at China Perspectives shows how Chinese gambling capital relies on the ‘linguistic’ labor provided by imported by legal and quasi-legal Chinese workers in the Philippines and Zambia.
Moving forward, I plan to bring together literature in development, political economy, and international crime, I look at the mobility and ramifications of Chinese illicit capital. A paper that demonstrates how illicit or flexible capital expands from the online gambling to other sectors has been presented at a workshop hosted by Kyoto University’s Center for Southeast Asian Studies.