U.S. Department of State, "2007 International Narcotics Control Strategy Report," March 18, 2007

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Drug and Chemical Control

Summary

The People's Republic of China is a major factor in the regional drug market, serving as a transit country and an important producer/exporter of Amphetamine Type Stimulants (ATS). China continues to have a domestic heroin problem along with an upsurge in the consumption of synthetic drugs such as Ecstasy and crystal methamphetamine, known locally as "ice." Chinese authorities view drug trafficking and abuse as a major threat to its national security, its economy, and its national and regional stability, but corruption in far-flung drug producing and drug transit regions of China limits what dedicated enforcement officials can accomplish. Authorities continue to take steps to integrate China into regional and global counternarcotics efforts. Cooperation with U.S. counternarcotics officials has steadily improved over the past year. A successful joint operation in 2005/2006 dismantled a Colombian drug organization operating in Southern China. China is a party to the 1988 UN Drug Convention.

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Money Laundering and Financial Crimes

Money laundering remains a major concern as China restructures its economy. A more sophisticated and globally connected financial system in one of the world's fastest growing economies will offer significantly more opportunities for money laundering activity. Most money laundering cases currently under investigation involve funds obtained from corruption and bribery. Narcotics trafficking, smuggling, alien smuggling, counterfeiting, fraud and other financial crimes remain major sources of laundered funds. Proceeds of tax evasion, recycled through offshore companies, often return to China disguised as foreign investment, and as such, receive tax benefits. Continuing speculation following the July 2005 adjustment of the renminbi (RMB) exchange rate system also fueled illicit capital flows into China throughout 2006. Hong Kong-registered companies figure prominently in schemes to transfer corruption proceeds and in tax evasion recycling schemes. The International Monetary Fund estimated that money laundering in China may total as much as $24 billion annually.

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