China cracks down on underground bank network
March 6, 2017 Category Finance, Weekly
China is facing huge pressure from capital outflows as investors attempt to move their cash overseas, sometimes illegally, as the yuan’s exchange rate has been weakening against the U.S. dollar. The country’s foreign exchange reserves have shrunk by USD1 trillion from their peak in June 2014. China’s foreign exchange regulator, the State Administration of Foreign Exchange (SAFE), has tightened oversight of cash remittances overseas and suspended Chinese investments in overseas property projects. This has forced some businesses and people to turn to unlicensed banking operations to get money out of the country. A huge amount of cross-border transactions exist beyond the government’s watch, creating a big ‘black hole’ in China’s financial system. Police seized more than CNY900 billion during raids on underground banks last year, the Ministry of Public Security said. The 380 major cases involved more than 800 suspects. “For a long time, underground banks have become a fast channel to transfer money, for they are anonymous and hidden. Many criminals have taken advantage of the channel to transfer their illegal gains overseas,” said Zhang Niannian, an official at the People’s Bank of China (PBOC).
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