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New Adventures in Capital Mobility

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epa01150223 Two men carrying goods to be recycled ride their flatbed tricycles past a red Porsche Cayman parked outside a high end housing complex in Beijing, China, 18 October 2007. Chinas economic growth is widening the gaps between the rich and the poor. By the government's own statistics, 20 million people in China still live in absolute poverty, and tens of millions more on less than a dollar a day, while a survey published last week found that the number of dollar billionaires had exploded to more than 100 last year from just 15 the year before. China's leader Hu Jintao announced in his speech on the first day of the 17th communist party conference, that the tax system would be reformed to redistribute wealth from the super-rich to the poor. EPA/DIEGO AZUBEL
epa01150223 Two men carrying goods to be recycled ride their flatbed tricycles past a red Porsche Cayman parked outside a high end housing complex in Beijing, China, 18 October 2007. Chinas economic growth is widening the gaps between the rich and the poor. By the government’s own statistics, 20 million people in China still live in absolute poverty, and tens of millions more on less than a dollar a day, while a survey published last week found that the number of dollar billionaires had exploded to more than 100 last year from just 15 the year before. China’s leader Hu Jintao announced in his speech on the first day of the 17th communist party conference, that the tax system would be reformed to redistribute wealth from the super-rich to the poor. EPA/DIEGO AZUBEL

Chinese capitalists are getting inventive in getting their money out of China.

But China’s experience has often proved that money will find a way to flow where it wants. In a post published on Sunday on Seattle-headquartered law firm Harris & Moure’s China Law Blog, Mr. Harris detailed his conversation with an adviser to a Chinese company. The adviser had called him essentially to ask Harris & Moure to help the Chinese company deliberately lose a lawsuit for a phony breach of contract that would result in a payout of $3.5 million, which the Chinese company would then send to the U.S.

The money, as it turns out, would be paid to entities in the U.S. controlled by the Chinese company itself.

Mr. Harris told China Real Time that the company, a privately-held Chinese manufacturer, wanted to pursue such a fake arbitration, rather than fake a simple legal settlement for the same amount of money, because it was concerned about convincing government regulators who have been closely scrutinizing offshore remittances.

“They wanted it to look really official,” he said in a phone interview. “Arbitration also moves quickly, so they could conceivably do it within three months.”

Mr. Harris said he got the call in the last two weeks, and it was the first and only of its kind he’s so far received. He said he altered the nationality of the adviser recounted in his blog post – the adviser was a Westerner, but not Australian – to shield the identities of those involved.

It became clear to Mr. Harris in his conversation with the Western adviser to the Chinese company that there wasn’t even a real counter-party in the U.S., where the Chinese company wanted to move its funds. “We would have helped to form this company that would have sued this Chinese company,” he told China Real Time.

Curious as to how China deals with these issues going forward, especially as large swaths of its wealthy class really sees the West as a more desirable place to live.

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