“Some gamblers place huge amounts of bets, causing a huge outflow of funds,” Miao Shengming, head of the first prosecutor’s office at the Supreme People’s Procuratorate, said on Monday.

“[Overseas casinos] reap huge economic benefits, and endanger our economic security.”

As 1,376 of 13,329 overseas-related crimes prosecuted in the first nine months of the year involved casinos, Chau’s arrest is clearly indicative of Beijing’s more aggressive stance, analysts said.

“If they see that there is too much outflow, maybe due to illegal means, they may tighten the grip of controls. This may be what is happening now,” said Edwin Lai, a professor of economics at Hong Kong University of Science and Technology.

“The ‘control’ mindset is still very much alive in the case of cross-border capital flows.”

China braced for US tapering, rate increases with Powell set keep top Fed job

The State Administration of Foreign Exchange last week highlighted the risks concerning underground banking, including bogus transactions through shell companies, the refitting of sales machines, overseas cash withdrawals via bank ATM cards, cash trafficking and transfers through bitcoin and other virtual currencies.

More than 70 underground banks have already been targeted this year, with one case in Gansu province leading to the arrest of 36 suspects involving as much as 75.6 billion yuan (US$11.9 billion).

Tackling outflows through grey areas, which often go unreported on the balance of international payments, is viewed as important ahead of the upcoming leadership reshuffle.

China will announce its latest major leadership reshuffle at a key party congress next year and Zhou Xuezhi, a researcher with the Institute of World Economics and Politics of the Chinese Academy of Social Sciences, believes the fight against gambling crimes will partly help outflows.

“All of them are preventive measures,” said Zhou.

China is well positioned because of its reluctance to use big stimulus, capital control and economic fundamentals, according to Zhou, while the fact the yuan is currently strong against the US dollar indicates a low level of market panic.

“Outflows won’t be a big problem in three to six months,” he added.

Ding Shuang, chief Greater China economist at Standard Chartered Bank, said the demand from Chinese citizens for global asset diversification is increasing, but the government does not need to worry when inflows are strong.

Beijing has implemented close-circuit capital market opening-up, with stock, bond and wealth management connect programmes as well as qualified foreign institutional investor schemes to manage money flows in and out of China.

It saw a net inflow of US$149.3 billion last year, a reversal of the outflow seen in the previous five years.

“The government’s attitude is to encourage the flows through officially recognised ways, but firmly crack down on illegal channels,” Ding said.

Huang Yiping, a Peking University professor who advised the central bank during the 2015-17 turbulence, warned that economies with vulnerable financial systems, overvalued currencies, high government debt or bad economic fundamentals are particularly prone to US policy adjustments.

“Our country could also face the pressure of currency depreciation, capital outflows and even a drop in asset prices,” he told an annual conference organised by Caijing magazine at the weekend.

Guan Tao, chief economist at BOC International, expressed concern over the narrowed interest rate gap between China and the US given the divergence between American tightening and Beijing’s more towards a looser stance next year.

“It will accordingly lower the attractiveness of yuan assets, reduce the inflows, or even trigger capital outflows,” he wrote in an article on Sina.com on Monday.

China ‘must prevent reversal of capital flows’, former official warns

While strengthening monitoring and risk-control capabilities, China should push forward with institutional opening-up by improving policy transparency and predictability to lure long-term capital, he suggested.

The Chinese authorities have tried to shore up market confidence and manage expectations in the past several months, saying that they have adequate tools and are well prepared for potential headwinds.

China holds the world’s largest foreign exchange reserves totalling US$3.2 trillion, while it remains a magnet for global investors due to its large market and financial opening-up.

In a statement issued last week, China’s foreign exchange regulator pledged close cooperation with police, customs, taxation and other departments to actively unearth clues concerning illegal capital transfer activities.

Particularly, they ordered banks and payment institutions to take more responsibility to identify violations, while also blocking loopholes.