China has announced plans to boost its efforts to prevent any further capital from flowing out of the country. This year saw a record amount of cash flowing out of China through unauthorized channels, which is bad news as the country's financial reserves need to be high in order to maintain confidence in its markets.
The increased outflow of cash comes as the country continues to struggle with its ongoing trade dispute with the United States and its economic growth slowdown. Government officials are now trying to come up with new measures to avoid a repeat of the financial scare four years ago when the country saw hundreds of billions of dollars disappear from its reserves.
China's State Administration of Foreign Exchange (SAFE) announced this week that it is committed to fulfilling its mandate of preventing any major financial risks by stopping unauthorized capital flows. The agency aims to do this by bolstering its efforts in cracking down on illegal trading and other underground activities.
The agency mentioned in a statement that the fight against capital outflow is a critical battle that must be won to maintain China's market stability. So far the agency has managed to win smaller victories as part of its wider crackdown efforts.
Last month, SAFE managed to fine China Bank Payments $4.2 million for it's involving in moving money to overseas accounts. The fine was the largest ever imposed by the agency since it was established. SAFE did not mention the exact amount that was moved by the bank, but it can be assumed that it was in the tens of millions given that fines are calculated based on the amount of money involved.
China Bank Payments, which is a subsidiary of JD.com, was apparently used by "external merchants" who took advantage of loopholes in its system to transfer large amounts of money abroad. The company has so far apologized for its shortcomings and has vowed to immediately enhance its systems to prevent the incident from happening again.
Earlier in the month, SAFE managed to catch a Bank of China customer who took out more than $50,000 in cash from his bank account under a week. The agency fined the bank for allowing its customers to break government rules that limit the amount of foreign currency that can be withdrawn at a certain amount of time.
While the amount was relatively small, it is only one of the examples of how far the government is willing to go to prevent any further cash outflow. According to a report published by the Institute of International Finance, it estimates that around $131 billion had left China in the first six months of 2019 through "hidden capital outflows."
