Chinese economists have said a large share of the country's foreign direct investment from financial centers such as the Cayman Islands, Luxembourg or Hong Kong is money that was first sent abroad by Chinese companies.
Global Financial Integrity said that one financial center, the British Virgin Islands in the Caribbean, has just 28,000 people but accounted for $213.7 billion in officially reported investment in China in 2010.
"Clearly, genuine recorded FDI into China is overstated to the extent that total foreign direct investment includes round-tripped funds coming from tax havens," said Kar.
The financial flows reflect widespread frustration with China's government-controlled financial system, which channels most bank lending and other benefits to state-owned companies at the expense of savers and entrepreneurs.
The government has eased some controls by allowing families to move more money abroad to buy real estate or make other investments and reducing the number of approvals required for companies to invest abroad.
Copyright 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.