An underground bank in Sahoquan, in the southern Chinese province of Guangdong, helped more than 10,000 residents bring about $3 billion out of China before the government finally shut it down last week. Seven people were arrested.
China limits the amount of money that individuals can take out of the country in a year to $50,000. The limits don’t apply to large corporations or strategic investments.
The money came from every corner of the country, which maintains strict controls over taking wealth out. The crackdown was announced by the state-run news agency Xinhua, which noted that the “bank” had 148 illegal accounts.
China is particularly sensitive about stopping such leaks of money since a panic caused by a stock market crash combined with a currency devaluation convinced many residents to send their funds abroad and convert them into other currencies. This reduced China’s reserves of foreign cash by $1 trillion and trigged a major enforcement effort.
That combined with an improved economy seems to have slowed the hemorrhage. But last week’s raid demonstrates that it has certainly not been stopped. Underground banks, despite being illegal, are numerous in the Peoples Republic. Most of them are located in areas bordering Hong Kong and Macau, which have their own laws.
Another method of avoiding the state limits are to send money to Macau, where China’s only legal casinos operate. They also use credit cards to buy luxury goods abroad that can then be sold for casino or buy insurance policies that can be cashed once outside of the country.
Combating such practices has been a major priority of President Xi Jinping, with special attention to cryptocurrencies such as Bitcoin and controls on all overseas investments.
