In April, the People's Bank began a crackdown on illegal money transfers abroad. In recent months, the illegal flow has increased, damaging the yuan, reducing the amount available for domestic lending and putting increased pressure on interest rates. To stem the tide, the authorities pledge to impose greater controls and restrict the channels by which money can leave the country.

Beijing (AsiaNews) – China began to crack down on underground banks in April. Thus far, Chinese authorities have uncovered more than 170 cases of money laundering and illegal fund transfers worth more than 800 billion yuan (US$ 125.34 billion).

Illegal flows of so-called ‘grey capital’ have not only had an impact on China's foreign exchange management system, but also seriously on the country's financial and capital markets, the People's Daily  reported recently.

Although the crackdown by China's police, foreign exchange regulator and the People's Bank of China made some progress, illegal activities by China's underground banks were spreading and the situation was still serious, the Communist Party's official mouthpiece said.

In the biggest illegal money-transfer bust so far, Chinese funds worth about 410 billion yuan were transferred overseas using non-resident accounts, exploiting regulatory loopholes and bypassing oversight.

In view of the situation, China's central bank and foreign exchange regulator have also moved to restrict channels by which money can legally leave the country. The aim is to keep a stable money supply and lower domestic interest rates.

As part of this, China's central bank and commercial banks bought a net 12.9 billion yuan (US.02 billion) worth of foreign exchange in October, to counter capital outflows and heavy sales in the previous three months.

Sources told Reuters last week that China had also moved to restrict trade at offshore yuan clearing banks – stepping up capital controls – even as Beijing positioned its currency for inclusion in the International Monetary Fund's reserve basket.

The IMF will decide whether to include the yuan or not at the end of the month.

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