A new view on estimating China's capital flight through the travel channel

Abstract

This paper proposes a novel approach to quantitatively estimating the magnitude of China's capital flight through the travel channel from 2014 to 2019. We set 2014 as the break point to account for a change in the methodology of compiling outbound travel expenditure and adopt a counterfactual method to calculate the magnitude of China's capital flight through the travel channel. Our results show that, from 2014 to 2019, China's capital flight through the travel channel reached a total of US$602 billion, with a quarterly average of about US$25 billion, accounting for about 40% of the total Chinese outbound travel expenditure. We further construct a gravity model using data from the United Nations' World Tourism Organisation to empirically show that China's capital flight tends to flow to economies with a high degree of financial development and often appears when the RMB depreciates against the US dollar.