Positive Study On Offshore Business And Capital Flight Of China

Firstly, the paper, based on the nature of offshore business, defines it as the trans-border international agency services which change the law application of the principal. It changes the law status of offshore company owners, making it possible for them to change from a resident of one country into a non-resident, thus escape from the administration of their country, achieve tax avoidance and capital transfer. These characteristics of offshore business make it become a convenient channel for capital flight, so the paper takes it as a cause of capital flight to make research on it.Secondly, the paper focuses on the topics below: the nature and characteristics of offshore, offshore jurisdictions, offshore company and offshore business, the special system of offshoreness: the trans-border international agency services, the origin and developing background of international offshore business. The paper points out that the development of international offshore business, while at the same time meets the international capital flow in the whole world, also brings some harms as tax avoidance and capital flight, which lead the western countries to make theoretical research and administrative practices for offshore business.Then the paper discusses about the reasons and influences of capital flight according to the economic theories of international capital flow and capital flight. Through analyzing the current offshore policies of Chinese government and the current development of offshore business in China and making researches on the patterns and effects of the following offshore operations: transfer pricing and tax avoidance, offshore overseas IPO and capital flight in China, the paper points out the connection between offshore business and capital flight. Then, using the two methods of capital flight volume evaluation: the errors and omissions method and the World Bank indirect method, the paper evaluates the capital flight volume of the year 1991 to 2005 in China. Based on portfolio investment models (Johnson, 1976;Purvis, 1978) , the paper makes a metrological analysis about the causes of capital flight in China. The analysis introduces the offshore business as a special dummy variable in the metrological model to check if offshore business is an influencing factor of capital flight and establish theoretical basis for government policy making. Then, taking the offshore business in Zhejiang province as an example and through the investigation and research of the offshore enterprises in Zhejiang, the paper analyzes the reasons and basis for the birth and development of the offshore business in Zhejiang. Through the comparing analysis of the differences between offshore business in Zhejiang and those in the western countries, the paper points out the basic structures and characteristics of the offshore business in Zhejiang and establish positive basis for government policy making.Lastly, based on the theories and the conclusion of positive analysis, the paper focuses on how our government should make the effective and reasonable policies concerned.