Some wealthy citizens in China are turning to underground money handlers to move cash, Bloomberg reported. Moving money through these quasi-banking systems is risky and can result in jail time. Some Chinese underground banks settle transfers using funds generated by criminal groups, the report said. Loading Something is loading.
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China’s economy has endured broad headwinds over recent months stemming from its troubled property sector and the lack of post-pandemic rebound. According to a Bloomberg report on Sunday, wealthy Chinese citizens have been finding unusual, sometimes illegal ways to move money overseas to keep their cash safe amid the uncertainty.
Funds can move through an informal, underground banking system known as “hawala,” the Bloomberg report said, which isn’t regulated and is largely contingent on faith. Advisers to the rich have reported a surge in demand for backup options like these as Beijing tries to gain control over the financial tumult in the country.
Wealthy and middle class families feel the need to keep money outside of China, either for the sake of diversifying or to build a nest egg for future immigration.
Yet, per Bloomberg, opportunities to move cash without breaking any rules are limited, and individuals can typically wire no more than $50,000 a year overseas, and emigrating only offers a one-time chance to move money.
“These agencies have sprouted to meet soaring demand,” Joel Gallo, an adjunct professor of finance at New York University Shanghai, told Bloomberg. “They act as quasi-banking firms, yet operate without the scrutiny of one and adroitly engage in regulatory arbitrage by standing in a gray zone.”
The size of these furtive systems isn’t known for sure, but they are global and pervasive. One report from 2021 saw an operation that spanned 75.6 billion yuan in assets spread across five organizations and 8,000 banks.
Citing the UK’s National Crime Agency, Bloomberg reported that it’s highly likely these underground banks have pools of funds ready in key locations in order to users to get their money quickly in local currencies.
Still, those who choose to skirt the rules in order to move cash around are putting themselves at risk. Those caught using illegal exchange services in mainland China are typically fined 30% or more of the total amount that they had attempted to transfer. For larger volumes, serious jail time is also a risk, the report said.
What’s more, to rely on this system, individuals risk associating with criminals. According to Bloomberg, Chinese banks that ultimately settle exchanges with hawala routinely use cash generated by criminal groups that participated in drug trafficking or human trafficking.
In any case, the demand to move money remains high. UBS’ wealth report found that 6.2 million Chinese had assets worth more than $1 million at the end of last year. In August, the real estate consultancy Juwai IQI said it expects more than 700,000 Chinese people to emigrate in the coming two years.
Should Beijing crackdown further on cash transfer laws, experts told Bloomberg the demand will remain high, with a source telling Bloomberg that as much as $150 billion is expected to exit the country this year.