TAIPEI—According to recent estimates from underground bank operators in China, over US$40 billion of laundered foreign capital went into China's real estate market. China's stock market is no longer the favorite and China's house prices continue to break records.
Mainland media China Business on September 9, 2007, said foreign capital is quietly entering the real estate markets in Shenzhen, Guangzhou, and Shanghai. Stock markets are no longer attractive for underground foreign investors. This article based its findings on interviews conducted by Li Youhuan, a researcher from Guangdong Academy of Social Sciences, with over 30 underground bank operators earlier this year. Compiled in the report was detailed information on illegal foreign investments from laundered money and it has been handed over to Beijing.
As the movement to combat underground banks intensifies, underground bank operators no longer easily expose themselves. This report could be the last and most authoritative one of its kind.
Li's report, quite shockingly, concludes that of the over US$40 billion in foreign investments admittedly handled by the underground banks, a great part of it has switched from stocks to real estate and mostly in Guangzhou, Shenzhen, and Shanghai. The switch shows that the stock market in China is greatly controlled by government policies and doesn't favor rapid increases in value.
An insider said that the underground banks are mostly registered companies in Hong Kong and Macao. When a foreign investor buys real estate, they usually register as a temporary small company and make purchases in the form of loans. "Foreign investors' favorites are middle to high end houses," says the informer. The informer also disclosed that purchasing houses in this manner is in fact using 20 or 30 percent of the loan to speculate.
Li's report came out in April 2007. At the time real estate movement in China was at fever pitch. In Shenzhen, values increased over 20 percent, raising house prices in China. Li also pointed out in his report, Shenzhen, Shanghai and Guangzhou are favorite cities for laundered money schemes.
Recently China's State Administration of Foreign Exchange (SAFE) has begun combating underground banks in Guangzhou, Shenzhen, Shanghai and Shandong. In an underground bank in Shanghai, SAFE uncovered over US$700 million in illegal investments.
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