U.S. Department of State, "2010 International Narcotics Control Strategy Report," March 2010

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Drug and Chemical Control

Summary

The People’s Republic of China (PRC) continues to face problems of drug production and trafficking, which contribute to its status as an important drug transit country in the international drug trafficking arena. China is a major manufacturer of “dual use” chemicals, primarily used for licit products, but also used for illicit drugs like methamphetamine. Organized crime diverts legitimately manufactured chemicals, especially ephedrine and pseudoephedrine, from large chemical industries throughout China to produce illicit drugs. In addition to domestic drug production problems, China’s proximity to the Golden Triangle, North Korea, and the Golden Crescent facilitates the trafficking of drugs such as heroin and opium. PRC authorities view drug trafficking and abuse as a major threat to China’s national security, economy, and stability.

The PRC’s National Narcotics Control Commission (NNCC) conducted a new round of the “People’s War against Drugs” in 2009 to maintain an “in-depth and continuous improvement” of controlling drug production and trafficking. The absolute number of seizures of illicit drugs increased over recent years. However, corruption in drug-producing and drug transit regions of China limits what dedicated enforcement officials can accomplish. PRC authorities continue to take steps to integrate China into regional and global counternarcotics efforts, and cooperation with U.S. counternarcotics officials improved over the past year. The PRC is a party to the 1988 United Nations (UN) Drug Convention.

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Money Laundering and Financial Crimes

The Government of the People’s Republic of China has continued to take steps to strengthen its anti-money laundering/counter-terrorist financing (AML/CFT) framework during the period of 2008-2009. Money laundering remains a serious concern as China restructures its economy and develops its financial system. Narcotics trafficking, smuggling, trafficking in persons, counterfeiting of trade goods, trade based money laundering, corruption, fraud, tax evasion, and other financial crimes are major sources of laundered funds. Most money laundering cases currently under investigation involve funds obtained from corruption and bribery. Proceeds of tax evasion, recycled through offshore companies, often return to China disguised as foreign investment and, as such, receive tax benefits. Chinese officials have noted that most acts of corruption in China are closely related to economic activities that accompany illegal money transfers. Observers register increasing concern regarding underground banking and trade-based money laundering. Value transfer via trade goods, including barter exchange, is a common component in Chinese underground finance. Many Chinese underground trading networks in Africa, Asia, the Middle East, and the Americas participate in the trade of Chinese-manufactured counterfeit goods. This trade-based mechanism could also present terrorist financing risks. Reportedly, the proceeds of narcotics produced in Latin America are laundered via trade by purchasing Chinese manufactured goods (both licit and counterfeit) in an Asian version of the Black Market Peso Exchange.

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