Banks in Shenzhen have lifted the limits on cash withdrawals put in place last week, following a rare public rap on the knuckles by Chinese premier Wen Jiabao.
HONG KONG: Banks in Shenzhen have lifted the limits on cash withdrawals put in place last week, following a rare public rap on the knuckles by Chinese premier Wen Jiabao who said that “better methods” should have been invoked to stop the illegal flow of funds from mainland China into the Hong Kong stock market.
The daily cash limits on withdrawals for individuals and corporate account holders had triggered loud protests from small businesses and from the public, and had rattled public faith in the banking system. They also drew a rare public censure from Wen, who said in Singapore that although the Shenzhen banks’ motives were good, “we should have taken measures that were more effective and acceptable to the public.”
The limits had been put in place to stop the tidal wave of laundered money - running into billions of yuan -from mainland investors into the Hong Kong stock market, which had triggered fears of a flight of capital.
An underground bank that had been illegally channelising funds was shut down and its owner and five others arrested.
Wen noted that more than half of China’s cash withdrawals in recent months had been made in Shenzhen, and said that the government would not allow money flows involving underground banks.
“The government will severely punish any state-owned or privately owned enterprises involved in such underground trading,” he added.
That warning appeared to have come in response to reports that the subsidiaries of two large state-owned enterprises - China National Petroleum Corp (the parent company of PetroChina) and Sinopec - were clients of the underground bank.
Michael Pettis, a professor at Peking University’s Guanghua School of Management, notes that in the context of “weak bank records” in China, with little information-sharing between banks and branches, the curbs on withdrawals could never have been effective.
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