Karishma Vaswani BBC Asia business correspondent 18 August 2016 a clampdown on shadow banking in China uncovered 30bn 23bn worth of illegal banking activity It may seem a staggering figure but analysts say this is just the tip of the iceberg ID: 542701
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Slide1
'Gangster grannies' and China's shadow banking world
Karishma
Vaswani
BBC, Asia
business correspondent
18 August 2016Slide2
a clampdown on shadow banking in China uncovered $30bn (£23bn) worth of illegal banking activity. It may seem a staggering figure, but analysts say this is just the tip of the iceberg.Slide3
what is shadow banking?
abc
reportSlide4
In its most basic form, it includes pawn-shops, the man on the street offering you ready credit at exorbitant rates, and attractive but risky investment schemes.
It also encompasses unregulated wealth management products offered by legitimate financial institutions.
But a substantial part of the sector also includes individuals or informal networks with no financial
licence
or regulation.Slide5
Informal lending has always existed in China's economy, but shadow banking really took off post the global financial crisis in 2008/2009.Slide6
http://www.shanghaidaily.com/metro/society/31-held-for-running-underground-banking-racket-in-Shanghai/shdaily.shtmlSlide7
POLICE have detained 31 suspects for running an underground banking racket in Shanghai that involved foreign currencies worth over 2 billion yuan (US$300 million) in the past three years.Slide8
The gang, led by a 60-year-old local woman surnamed Sun, provided the service to about 100 people. Most of them exchanged Chinese yuan for foreign currencies to purchase real estate or pay for their children’s tuition in foreign countries.Slide9
Sun had contacts in provinces, including Zhejiang and Sichuan, who helped with the money transfers. The total amount of illegal transactions through the network could exceed 10 billion yuan, police said.Slide10
The modus operandi involved clients transferring yuan into domestic accounts set up by the gang. The corresponding amount in foreign currencies was then deposited into foreign accounts of the clients through a remittance channel that worked outside the traditional banking systems. In short, money was transferred without any actual movement.Slide11
Deals were also done with banknotes exchanged offline.
The cap for foreign currency purchasing for individuals in China is US$50,000 per year.
the single largest transaction was about 10 million yuan.
“The gang profited between 30 to 50 cents for every US$100 worth of money exchanged,” he saidSlide12
She reportedly led a local gang and provided shadow banking services to about 100 customers who wanted to buy real estate abroad or pay for their children's school fees in foreign countries.Slide13
Because it is an unregulated industry, it's hard to say definitively who uses them, but it appears that Chinese companies, corrupt officials looking to move their money overseas, local governments interested in higher returns and the Chinese middle classes have all invested in the shadow banking sector.Slide14
Moody's Investors Service says that the shadow banking system continues to expand rapidly, with assets held by these less regulated banks
totalling
some 78% of China's GDP.Slide15
And in its annual review of the Chinese economy, the International Monetary Fund recently said that almost half of the shadow banking products that have
fuelled
China's credit boom carry "an elevated risk of default".Slide16
Chinese criminal law:
Article
192
or
Article
176?Slide17
Article 176
Whoever illegally takes in deposits from the general public or does so in disguised form, thus disrupting the financial order, shall be sentenced to fixed-term imprisonment of not more than three years or criminal detention and shall also, or shall only, be fined not less than 20,000 yuan but not more than 200,000 yuan; if the amount involved is huge, or if there are other serious circumstances, he shall be sentenced to fixed-term imprisonment of not less than three years but not more than 10 years and shall also be fined not less than 50,000 yuan but not more than 500,000 yuan.
Where a unit commits the crime as mentioned in the preceding paragraph, it shall be fined, and the persons who are directly in charge and the other persons who are directly responsible for the crime shall be punished according to the provisions in the preceding paragraph.Slide18
Article 192
Whoever, for the purpose of illegal possession, unlawfully raises funds by means of fraud shall, if the amount involved is relatively large, be sentenced to fixed-term imprisonment of not more than five years or criminal detention and shall also be fined not less than 20,000 yuan but not more than 200,000 yuan; if the amount involved is huge, or if there are other serious circumstances, he shall be sentenced to fixed-term imprisonment of not less than five years but not more than 10 years and shall also be fined not less than 50,000 yuan but not more than 500,000 yuan; if the amount involved is especially huge, or if there are other especially serious circumstances, he shall be sentenced to fixed-term imprisonment of not less than 10 years or life imprisonment and shall also be fined not less than 50,000 yuan but not more than 500,000 yuan or be sentenced to confiscation of property.Slide19
What law would you use?Slide20
Should Mrs Sun be punished?
Is punishment adequate?