By John Foley

The author is a Reuters Breakingviews columnist. The opinions expressed are his own

China has somehow misplaced $100 billion. That’s how much is unaccounted for in the country’s $3.2 trillion foreign exchange reserves, which fell for the first time in a decade over the last quarter. If that’s hot money leaving the country, so be it. But genuine capital flight would be another story.

China’s national stash of forex fell by $21 billion in the fourth quarter. It should, on the face of it, have risen. Some $48 billion had come into the country through the trade surplus, and around $28 billion from foreign direct investment. That leaves $97 billion of unidentified outflows – despite China’s tightly managed capital controls.

European losses will explain some of the decline. If a quarter of the reserves are in euro – something China doesn’t confirm or deny – the 3 percent fall in the value of the euro against the dollar would have cut the reserves by $24 billion. Outbound investment, around half the size of inbound, might bring kosher outflows to around $40 billion.

That leaves more than half the gap as illicit flows. Trade is the usual channel; manufacturers sell more goods than they officially book. Differences in how trade flows are reported between countries make those tricks hard to detect. To muddy things further, some money comes back as foreign direct investment to benefit from tax perks, through the so-called “round-tripping” trade; some more re-enters through the brisk HK-China smuggling circuit.

The big question is why capital is flying. It might just be a sign that speculator think that the yuan, up 5 percent against the dollar in 2011, will slow in 2012. Their hot money is better out than in. But it would be worse if the drop reflected privileged insiders losing confidence in China’s investment heavy, corruption-plagued economic model. If that’s the case, this could signal the beginning of a more serious reversal.