China mounts massive crackdown on sprawling underground bank network
Police launch raids across the country as finance system comes under strong pressure from capital outflows
Hundreds of suspected operators of underground banks have been arrested this year in a nationwide crackdown on the multibillion-yuan illegal cross-border money trade, China’s Ministry of Public Security said on Wednesday.
In all, 450 suspects from 192 illegal banks had been rounded up in relation to 200 billion yuan (HK$234 billion) in illicit transactions, the ministry’s newspaper, China Police Daily, reported.
The crackdown comes as the mainland faces strong capital outflow pressures, partly due to expectations of a weakening yuan. The country’s foreign exchange reserves have fallen by about US$450 billion in the last year despite signs of stabilisation in recent months.
The capital account is largely closed to individuals except for a few channels, such as the Shanghai-Hong Kong stock link. Mainland residents can change up to US$50,000 worth of foreign currencies per year.
Demand for ways to skirt these limits has grown with the elite’s appetite for offshore property and the need for corrupt officials squeezed by President Xi Jinping’s anti-corruption campaign to move their illicit gains abroad.
Renmin University finance professor Zhao Xijun said the authorities had no choice but to “strike hard” because the situation could easily get out of control to disrupt the market. “Underground money shops are a scaled business now in China, and there are hundreds, if not thousands, of shell companies with the sole purpose of getting money out of China,” Zhao said.