Capital flight is increasing from heightened engagement with Chinese o-crime.

Capital flight from China is by no means a new phenomenon but in recent years the scale of these transfers has surged, according to both Chinese officials and analysts who track China’s international remittances.

“The levels of capital flight in the past three years have been quite alarming,” says one senior Chinese official, who declined to be identified and who says that a lot of billionaires and multimillionaires are trying to leave China and take their money with them.

“Some wealthy private entrepreneurs are losing confidence in China’s future. They feel unsafe so they are finding ways to get their money out.”

A regulatory crackdown on private enterprises that lasted for about two years from 2020, the ceaseless investigations into individual corruption and a sense that China’s military build-up could one day lead to conflict are prompting China’s wealthy to find exit routes for their capital.

In addition, some wealthy Chinese say that Xi appears ideologically opposed to personal wealth. His “common prosperity” policy, invoked in 2021, heralds what many believe will be a multi-year programme to redistribute wealth from the haves to the have-nots.

David Lesperance, a tax and immigration adviser based in Gibraltar, says the exodus of wealthy Chinese eclipses anything he has seen in more than 30 years.

“The last two years have seen the biggest exodus of my ultra-high net worth Chinese clients in over three decades,” says Lesperance.

Calculating the extent of capital flight from China is not straightforward. It requires forensic analysis of China’s balance of payments data to work out how much money is leaving the country through informal or illicit channels.

Brad Setser, a former US Treasury official and an expert on global capital flows at the Council on Foreign Relations, a US think-tank, estimates that as of the first quarter of this year, private capital flight from China was running at an annualised rate of about $516bn. It was even higher in the third quarter of 2022 when it hit nearly $738bn.

These levels are well above outflows in the last quarter of 2019 — before the pandemic struck early in 2020 — which were taking place at an annualised rate of $94bn.

Annualised rate at which private capital flight from China was running in the third quarter of 2022

Such levels of capital outflow are huge; they mean that a chunk of money roughly equivalent in size to Norway’s entire gross domestic product is set to depart for foreign shores this year.

“A lot of Chinese residents no longer believe that China’s economic trajectory is clearly positive, and thus no longer necessarily want to hold a large share of their wealth in China,” says Setser. “As a result, many are looking to find ways to move funds abroad, even though that is technically hard for many average Chinese residents.”

A myriad different ruses are deployed to spirit funds out of China. While experts and law enforcement officials believe the global networks of underground banks are the most common route, other methods involve over-invoicing for imports, using cryptocurrencies or charging payment for non-existent services overseas.

The rapid rise of Chinese money laundering groups has caught the attention of law enforcement around the world. In Italy, where the FT spoke to officials in Milan, Rome, Florence, Trento and Reggio Calabria, authorities are conducting a series of investigations they say reveal the close collaboration between Chinese money brokers and European organised crime.

Authorities believe Italian criminals have grown more reliant on Chinese underground bankers to not only launder the proceeds of their drug sales but also to pay for shipments of narcotics.

“The whole system of drug trafficking is being sustained by a network of clandestine [Chinese] money brokers,” says Giovanni Melillo, the chief prosecutor for Italy’s National Anti-Mafia and Terrorism Directorate, whose office has been coordinating the nationwide probes.

Italian authorities, including chief prosecutor Giovanni Melillo, centre, believe Italian criminals have grown more reliant on Chinese underground bankers to launder the proceeds of their drug sales

Giovanni Bombardieri, chief prosecutor in Reggio Calabria and a veteran in the fight against the powerful Calabrian mafia group known as the Ndrangheta, says recent investigations have shown how the mafia uses Chinese brokers to settle drug payments in Latin America.

The proliferation of Chinese money brokers is also being investigated by the UK’s National Crime Agency. Sal Melki, head of illicit finance at the body’s National Economic Crime Centre, says Chinese underground bankers were increasingly “turning to criminals as a source of readily available cash” to help Chinese nationals abroad evade capital controls.