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  • abcsurfnet abcsurfnet Sep 24, 2013 9:46 AM Flag

    How yuan gets to Macau... despite curbs China's hot money triangle flourishes

    Part 1: ZHUHAI, China/HONG KONG: In an underground mall just a stone's throw from China's teeming border with Macau, a row of 30 small shops with identical golden plaques does a brisk, though shadowy trade with mainland Chinese visitors, many of them bound for the gambling hub.

    "Good rates. Better than the banks," shout salespeople jostling to usher clients into shops where thick wads of Chinese 100 yuan and HK$1,000 bank notes change hands and shuffle noisily through electronic cash-counting machines. Licensed as liquor and dry goods stores with stacked shelves of rice wine and cigarettes, many conduct their real business in back rooms - as underground bankers and remittance agents.

    "It's very simple," said one agent surnamed Choi, dressed in sandals and ripped jeans, as he served tea in a back office where larger transactions are typically carried out. "You give me renminbi here. Then we deliver Hong Kong dollars to you in Macau. We can move tens of millions each day," he said, glancing up at six security camera images of his shop front flickering on a flat-screen TV.

    As China's economy and financial markets mature and gain in sophistication, so too does a vast underground banking industry offering swift, cheap and low risk cross-border fund transfers - shifting hundreds of millions of dollars each day. Much of that activity is conducted openly on the streets of southern China's Guangdong province, where businesses and individuals depend on underground networks to get around strict currency controls - both for legitimate commercial purposes and to safeguard assets beyond the reach of authorities.

    Beijing is finding it increasingly difficult to stem the tide of speculative and illegal cash. In the decade since China began cracking down on money laundering, the government has amended its criminal laws and strengthened commercial banking rules, but loosening restrictions on capital transfers has made it easier for hot money to be channeled across the border.

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    • Part 2:

      "China's financial markets are not that mature," said Yu Yongding, an economist at the Chinese Academy of Social Sciences and former adviser to the central bank. "There are lots of capital controls that certainly have contributed to these kind of activities, while corruption and money laundering also play an important role."


      In affluent Guangdong in the Pearl River Delta, cities like Zhuhai, Shenzhen, Guangzhou and Dongguan are major underground conduits for Chinese hot money. The province, where imports and exports amounted to $984 billion last year - a quarter of China's foreign trade - has served as a portal for capital flows since China's economic opening over 30 years ago.

      Collectively, the cities form part of a giant, unregulated underground banking triangle between China, the world's gambling capital of Macau and the global financial hub of Hong Kong.

      In Zhuhai alone, over 1 billion yuan is transferred daily through underground networks, according to a straw poll of six agents who spoke to Reuters - part of a tight-knit group of 100 operating in the border area.

      "Our business has gone up some 30 percent in the past three years," said one who gave his name as Li.

      Besides retail-level agents clustered around the borders at Zhuhai and nearby Shenzhen, another deep-rooted echelon of shadow bankers exists across Guangdong out of public view, often working from secret offices, with deals conducted between trusted, well connected parties, often with just a phone call.

      "I went to see a friend in this business once. It was just a tiny 100 square foot room filled with banknotes. Can you imagine how much money there was?" said a Hong Kong businessman surnamed Chan who has run a factory in Guangdong for over 20 years. "They're everywhere. In every village, town and city."

      • 1 Reply to abcsurfnet
      • Part 3:

        The Washington-based Global Financial Integrity group estimated about $2.83 trillion flowed illicitly out of China from 2005 to 2011, with Hong Kong the largest recipient.

        "The enormity of money laundering right now is a problem," said a senior law enforcement official in Hong Kong, who asked not to be named given the politically sensitive nature of his comments as a public official. "Chinese banks in Hong Kong are basically a black hole, even now."

        Yan Lixin, secretary general of Fudan University's China Centre for Anti-Money Laundering Studies, reckons more than a third of the capital moving through underground banking channels is dirty money being laundered. "According to the statistics within my scope and my own experience, it's approximately 30-40 percent at least," he said. "The situation is going from bad to worse."

        Much of the unofficial flows of capital into and out of the triangle of Guangdong, Hong Kong and Macau, facilitate trade and investment in the key economic region, businessmen say.

        Illegal cross border bank remittances can be used to wire extra capital into China to buy raw materials or cover wages during peak periods. "It just takes 15 minutes, but official approval can take two weeks," said an electronics factory boss in Dongguan who often uses underground banks. He didn't want to be named to avoid disrupting business ties with such agents.

        Unlike other shadow banking systems in eastern coastal regions like Zhejiang, Jiangsu and Wenzhou that tend to collect deposits and extend high interest loans to small businesses starved of credit, Guangdong's underground banks tend to play the greatest role in black money transfers abroad, says China's central bank.

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