Illegal money transfers remain a pressing issue: experts
China's foreign exchange market watchdog on Monday renewed its commitment to fight money laundering, improving policy transparency and further opening the domestic foreign exchange market.
The State Administration of Foreign Exchange (SAFE) vowed to strengthen oversight the foreign exchange market and crack down on illegal practices in 2017 to maintain an even international balance of payments, it said in a statement on Monday.
Illegal underground lending remains rampant in China. In 2016, the country's public security agencies uncovered more than 380 cases of illegal underground lending involving 900 billion yuan ($131 billion), the Xinhua News Agency reported on Sunday.
Domestic residents' illegal gains are transferred abroad through underground banks in collusion with people overseas, said Shu Jianping, head of the anti-money laundering office of the economic crime investigation division of the Ministry of Public Security, according to a separate Xinhua report.
In some cases, illegal lenders set up fake companies to transfer money from the fraudulent corporate bank accounts to individual bank accounts, according to Shu.
Since the country's capital account has not been opened up, underground banks are attractive to Chinese who wish to invest in property or stock markets overseas as well as those who have made their money illegally, Dong Dengxin, director of the Finance and Securities Institute at Wuhan University of Science and Technology, told the Global Times on Monday.
"Criminals can use the hidden channel to quickly transfer unlimited amounts of money. And they don't ask their clients where the money comes from or goes," he explained. These illegal practices not only disrupt the country's foreign exchange management and but also abet drug crimes, telecom fraud and corruption, he said.
The Ministry of Public Security will continue its fight against illegal underground lenders in cooperation with SAFE and the People's Bank of China (PBC), the country's central bank, according to Xinhua.
The PBC will continue to analyze new illegal practices, strengthen regulations on specific non-financial institutions and perfect anti-money laundering measures, said Zhang Niannian, an official from the central bank.
In December, the PBC lowered the reporting threshold for yuan-denominated cash transactions to 50,000 yuan. Prior to the change, banks only had to report transactions more than 200,000 yuan. It also required banks to report cross-border transfers exceeding 200,000 yuan by individuals.
Further opening up
China will continue to promote the two-way opening up of financial markets and will make cross-border trade and investment more convenient to better serve the real economy, Pan Gongsheng, head of SAFE, was quoted as saying in a report on the agency's website.
The domestic financial market can be further opened to foreign investors by expanding the Qualified Foreign Institutional Investors quota as well as other mechanisms such as the Shenzhen-Hong Kong Stock Connect and Shanghai-Hong Kong Stock Connect, said Qian Qimin, a senior analyst at Shanghai-based Shenwan Hongyuan Securities.
The China Securities Regulatory Commission (CSRC) also plans to raise the cap for foreign institutional investors' stakes in joint-venture securities firms from the existing level of 49 percent, CSRC Vice Chairman Fang Xinghai said on Sunday.
In the long run, the domestic banking, securities and insurance sectors will gradually open up, Qian told the Global Times on Monday. He noted that the degree of opening up should be in accordance with China's trade volume with other countries and the scale of foreign companies, as small foreign investors may easily go bankrupt and hurt China's financial market.
SAFE will promote convenience in trading and investment, support domestic companies that are carrying out true outbound direct investment in accordance with regulations and strengthen regulatory compliance supervision to prevent cross-border capital flow risks, according to a statement on its website in January.
Currently, the domestic foreign exchange market remain stable and cross-border capital flows are becoming more balanced, Pan noted.
