Chinese Ramp Up Illegal Money Transfers

November 5, 2015 Updated: December 7, 2015

As more people realize Chinese growth data cannot be trusted, the market is looking at capital outflows to gauge the true state of the Chinese economy.

If people are moving their money out, it’s a red flag. Estimates using official data put total capital outflows at $850 billion up to the end of September, well on track for a $1 trillion total by the end of the year.

In addition to the official data, we have now learned that Chinese people transferred at least $126 billion overseas since last April using underground banks, according to a report by Chinese state media Xinhua.  

The emphasis here is on “at least” because it is only the amount gathered by the People’s Bank of China from 92 investigations into underground banks. 

Ou Yangxiong, the head of Department of Management and Inspection at the State Administration of Foreign Exchange told Xinhua: 

“From the cases resolved, illegal underground banks have been dealing in greater amounts of money and their methods are increasingly more secretive. Slowly, these underground banks have become a ‘laundering tool,’ since some bankers [of regular banks] have become middlemen.”

Given the opacity of Chinese underground banking and the sums of money involved, the total could be double or triple the number of the cases actually investigated.

The Chinese regime has recently started to crack down on underground banks in an effort to reduce capital flight, one reason why the underground banking cases are increasing.  

But underground banks are only one of the few methods used to funnel money out the country.

Digital currency bitcoin’s stellar rise in recent months is one indication the Chinese are using it as a method to transfer their savings overseas as well.  

To mask additional official outflows, China has also been hiding direct sales of foreign exchange reserves with derivative contracts.