Written submission from Dr Xu Peng (CHI0053)
Written evidence submitted by Dr Xu Peng
Dr Xu Peng is a Hallsworth Research Fellow at the Humanitarian and Conflict Response Institute (HCRI), University of Manchester and Research Associate at the Centre for the Study of Illicit Economies, Violence and Development (CIVAD), SOAS University of London. She has been working on the intersection of illicit economies and conflict in China and Southeast Asia since 2018, combining long-term fieldwork in the region with sustained engagement with policy, media, and law-enforcement communities in the UK and Asia. She has completed a one-year SOC ACE project on The Centrality of the Margins: Borderlands, Illicit Economies and Uneven Development, and since 2026 has been leading a three-year research project on the digital illicit economy associated with Chinese-run scam compounds operating across Southeast Asia.
She is submitting this evidence because her research sits at a point the Committee’s inquiry is likely to encounter but which few other witnesses are well-placed to address: the operational link between large-scale criminal economies in and around China and the ways in which their proceeds enter, settle within, and are legitimised by UK markets. The views expressed here are offered in her personal academic capacity and do not represent the views of the University of Manchester, or any other institution with which she is affiliated. Generative artificial intelligence tools were used solely for proofreading and language refinement purposes.
Summary
- The UK debate on economic engagement with China has focused narrowly on trade volumes, strategic technologies, and critical supply chains, while underestimating a different set of vulnerabilities: the embedding of China-linked illicit capital through shell companies, property, and business-service infrastructures. The policy challenge is not whether to engage with China economically, but how to distinguish beneficial engagement from under-regulated exposure, and how to govern the risks that accompany open commercial channels.
- China is, and will remain, one of the UK’s most important economic counterparts, and disengagement is neither realistic nor desirable. This submission focuses instead on one area of UK–China economic engagement that has received far less attention than trade in goods, inbound investment, or technology transfer: the ways in which legitimate channels of commerce and professional services can also be exploited through shell-company formation, opaque capital movement, and the embedding of scam-linked assets into the UK economy. These vulnerabilities sit at the intersection of company law, anti-money-laundering supervision, property markets, and cross-border enforcement. They are central to any serious account of UK economic security with respect to China.
- In contemporary Chinese commercial discourse, “going global” (chuhai, 出海) is overwhelmingly used to describe the legitimate internationalisation of Chinese firms: market expansion, brand globalisation, cross-border e-commerce, and outbound investment. The vast majority of this activity is lawful and, in many respects, economically welcome to host jurisdictions including the UK.
- However, the same outward-expansion narrative, and the same commercial infrastructures that support it, can also be borrowed by a much narrower set of actors: opaque capital, grey-market operators, and transnational fraud and money-laundering networks. Proceeds from large-scale economic crimes in China including investment fraud, illegal fundraising, and the scam operations run out of Southeast Asian compounds are being transferred abroad, layered through corporate structures, and re-embedded in mature legal jurisdictions as property, financial assets, and other protected forms of wealth.
- The concern, therefore, is not Chinese outward investment as such, but the overlap between legitimate outward expansion and the infrastructures through which illicit capital can be concealed, transferred, and normalised. A phenomenon celebrated in China as “going global” has, at its margins, produced a parallel phenomenon that might be called the outbound movement of illicit capital, and the UK is one of its principal destinations.
- The UK’s exposure to these flows is not the product of lax enforcement in any simple sense. It is the by-product of features that are otherwise strengths of the UK economy: an open financial system, low barriers to company formation, a deep professional-services market, stable property rights, and a respected legal order. These same features can be, and are being, instrumentalised.
- The UK’s company-formation infrastructure is being misused at industrial scale, and increasingly by providers working for overseas clients. In January 2026, the High Court wound up three connected company-formation and secretarial providers that had together registered more than 11,000 UK businesses for clients based predominantly in China, none of whom had conducted the anti-money-laundering checks required of supervised agents.[1] This describes a market, not a series of isolated failures: UK corporate identity has become a product sold to overseas buyers by providers operating outside the supervised anti-money-laundering regime.
- Once illicit value reaches the UK, the more serious problem is what happens next. Recent civil recovery, forfeiture, and sanctions actions by UK law enforcement, including the Qian Zhimin Bitcoin case (2024–2025), the Chen Zhi / Prince Group sanctions action (2025) and the Su Jiangbo Unexplained Wealth Order (2026), have frozen or seized substantial China-linked assets, ranging from tens of thousands of Bitcoin to large portfolios of London residential and commercial property. The harm is therefore not only the inflow of illicit money, but its conversion into property, financial portfolios, and other assets that the UK legal system then protects as legitimate wealth, until belatedly and at considerable cost, enforcement action reverses that protection.
- The UK–China economic-security debate has concentrated on goods, inbound investment, and sensitive technologies. Services corporate, legal, property, payments, and the wider population of professional gatekeepers, are where the vulnerabilities described above are actually generated, and they should be treated as part of the economic-security picture rather than as an adjacent regulatory question.
- UK enforcement in this area runs into hard structural limits. The underlying offences generally occur in China and fall outside UK criminal jurisdiction; there is no UK–China bilateral extradition treaty, and extradition to China would face substantial human-rights and procedural obstacles; cross-border evidence-gathering is slow and expensive; and the threshold for criminal conviction is high.
- In this environment, civil asset recovery has become the UK’s most effective practical tool. It proceeds against assets rather than individuals, applies a lower standard of proof than criminal prosecution, and has enabled the recovery of substantial sums in cases where prosecuting the underlying actors is impracticable.
- But the same design has a structural consequence worth stating plainly: the UK system is often better equipped to immobilise or recover assets than to secure accountability for the actors behind them. In several recent high-value cases, individuals have retained their liberty, and in some instances their residence in the UK, after surrendering assets through civil settlement. Victim compensation is not the organising principle of civil recovery, and cross-border victims, typically numerous, dispersed, and under-resourced are in practice largely excluded from recovery proceedings.
- This is not a criticism of the UK’s legal order; it is a description of what a civil-asset-recovery regime can and cannot do on its own. Asset-focused enforcement, however effective, cannot discharge the UK’s responsibilities in this area by itself. It must be complemented by stronger front-end gatekeeping and by more structured cross-border cooperation.
- Treat business-service infrastructures as part of the economic-security toolkit. UK economic-security policy should expressly include company formation, corporate secretarial services, nominee and address-provision services, property-holding corporate vehicles, and other forms of professional intermediation, alongside the existing focus on trade, technology, and investment screening. The reforms already under way following the Economic Crime and Corporate Transparency Act 2023 are an important foundation; they should be resourced, implemented in full, and evaluated against the specific risk patterns observed in China-linked shell-company cases.
- Focus on structures, not nationality. Supervisory attention should concentrate on beneficial-ownership verification, bulk registrations and shared addresses, dormant entities with anomalous payment flows, and corporate service providers operating outside the supervised anti-money-laundering regime. Where providers market UK company identity to overseas clients as a compliance or reputational product, they should be brought clearly within that regime or prevented from operating.
- Make corporate transparency and shell-company risk an explicit item on the Financial Working Group's agenda. The UK–China Financial Working Group, convened for the first time in Beijing in January 2026 under the framework of the UK–China Economic and Financial Dialogue, has already committed both sides to implementing Financial Action Task Force standards and to enhancing international cooperation in combating money laundering and related crimes. This is a substantive starting point. Corporate transparency and shell-company risk are not explicitly named in the Working Group's published outcomes, although they arguably fall within its broader anti-money-laundering agenda. Naming them as an explicit item alongside routine information-sharing on high-risk corporate structures and formation agents, and engagement with independent researchers working on the source side of these flows would give practical effect to commitments that otherwise risk remaining at the level of general principle.
- Develop a UK position on cross-border victim compensation. Where UK civil-recovery, forfeiture, or sanctions actions involve assets connected to crimes committed against victims in another jurisdiction, existing mechanisms for overseas victims to access recovered funds operate with thresholds and through channels that in practice exclude the numerous, dispersed, small-amount victims typical of large-scale Chinese fraud cases. In recent China-linked cases, recovered value has predominantly flowed to the UK exchequer and to law-enforcement bodies rather than to the people whose money was originally taken. As a central destination for these assets, the UK is well placed to lead on this question. Developing a UK policy position on cross-border victim compensation, initially through the UK–China Financial Working Group, but ultimately as a broader framework would address a gap in international policy that currently goes unanswered, and would strengthen the UK's position as a credible cross-border legal jurisdiction rather than simply a beneficiary of asset recovery.
- Following the recent multi-agency crackdown that struck off over 11,500 UK companies, what is HM Government’s estimate of how many company-formation and corporate-secretarial providers marketing UK company identity to overseas clients, including in China, are currently operating outside the supervised anti-money-laundering regime and what enforcement plan follows from that estimate?
- In recent high-value civil recovery cases involving China-linked assets, what proportion of recovered value has been, or is expected to be, returned to victims, as opposed to retained by the UK exchequer or law-enforcement bodies?
- Has the UK–China financial-crime working group established under the UK–China Economic and Financial Dialogue met, and what is its current work programme on illicit finance, corporate transparency, and cross-border victim compensation?
- UK–China economic engagement will remain necessary, and in many respects valuable. But the current debate underestimates the role of shell companies, business services, and asset embedding in creating under-regulated exposure within otherwise legitimate commercial channels. What is needed is a more differentiated and enforceable framework for governing the risks that come with that engagement.
10 April 2026
5