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Officials work to stop flow of 'hot money'

By Zhan Lisheng (China Daily)
Updated: 2009-08-18 08:56

GUANGZHOU: Police say they are keeping close watch on rampant illegal banking, which has been linked to the flow of billions of dollars in "hot money" every year.

Hot money is stolen cash that can be traced back to a crime, such as marked currency or new bills with consecutive serial numbers.

"We've spared no efforts in dealing with the illegal private banks; however, it is by no means easy to track them down," an official with the provincial public security department's economic crime investigation bureau told China Daily.

"Our bureau has been watching the rapid inflow of international hot money very closely, while tracking down the illegal banks," the official said.

The flow of international hot money grew in China in April and has been gaining speed ever since, said Li Youhuan, a researcher with the provincial academy of social sciences, citing the outcome of a recent study.

Official estimates of the hot money transactions stood at $87.9 billion in the second quarter of this year.

"The exact figure must be much, much higher than that," he said.

According to Li, much of the hot money has flowed in via the illegal private banks in Shenzhen, while Hong Kong has been an important entrance for the international hot money.

The recent decision of two banks in Shenzhen to impose quotas on ATM cash withdrawals has much to do with the abnormal inflow of hot money and the rampancy of illegal private banks.

The Industrial and Commercial Bank of China's Shenzhen branch set the upper limit of ATM cash withdrawal at 10,000 yuan per day, compared with 20,000 yuan previously in mid-July.

The local branch of the Agricultural Bank of China set the upper limit at 5,000 yuan per day in May.

Imposing a quota on ATM cash withdrawals was carried out once in Shenzhen in late 2007, when international hot money kept gushing into China, but was soon abolished after strong complaints from the public.

According to a recent report on Central China TV (CCTV), illegal private banks have run so unbridled in Guangdong that many grocery stores in Shenzhen and in some cities in the east of the province have become the outlets of such illegal banking facilities, doing foreign currency exchange business.

Besides the on-the-spot foreign currency exchange business, an illegal private bank can help an overseas client transfer money to the mainland in less than half an hour, and then the client can withdraw the money directly in RMB, the report said.

And it charges generally 0.15 percent to 0.2 percent of the sum transferred, much lower than legal banking institutions.

Most of the illegal private banks on the mainland are owned by financial firms or foreign exchange firms in Hong Kong, which are legal there, the report said.

China cracked down on 45 cases related to illegal private banks during a special campaign from September 2007 to October 2008, tracking some 105 billion yuan in hot money, official statistics indicate.