China’s crackdown on underground banks uncovers illegal money transfers of more than US$125bn
Problem of illegal flows of ‘grey capital’, which has had impact on mainland’s foreign exchange management system, is spreading and still serious, People’s Daily newspaper reports
China started a crackdown on underground banks in April and has so far uncovered more than 170 cases of money laundering and illegal fund transfers involving more than 800 billion yuan ($125.34 billion), mainland media reports.
Illegal flows of such “grey capital” have not only had an impact on China's foreign exchange management system, but also seriously disturbed the country's financial and capital markets order, the People's Daily , the Communist Party's official mouthpiece, reported on its website.
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Although the crackdown, launched jointly by China's police, foreign exchange regulator and the People's Bank of China, had made some progress, illegal activities of China's underground banks were spreading and the situation was still serious, the article said.
In one illegal money-transfer case - the biggest discovered in China so far - Chinese funds worth about 410 billion yuan (HK$500 million) had been transferred overseas using non-resident accounts, exploiting regulatory loopholes and bypassing oversight, it said.
China's central bank and foreign exchange regulator have also been moving to restrict channels by which money can legally leave the country, in order to keep the money supply stable and lower domestic interest rates to spur growth.
If Chinese companies and individuals continue to sell yuan to buy dollars, it reduces the amount of yuan available for lending and therefore puts increased pressure on rates.