Main Clientele and Operators of Underground Banks: Analysis and Findings

Abstract

The revival of Chinese underground banks during China’s post-reform era after a nearly three-decade hiatus has been a subject of interest for the government and scholars alike. Various reports have indicated that they have played a significant role in the rapid growth of private enterprises by acting as loan-makers, informal foreign exchange dealers, and remitting agencies, through which large amounts of money have been moved domestically as well as across borders (Tsai, 2002). The operation of underground banks in China has been prohibited since 19981 and has been considered illegal in some states of the U.S. However, there is a lack of systematic research tracking the evolution of these informal financing systems, and no reliable investigation has been conducted into underground banking systems with regard to their connection with illegal and criminal activities. Information found in police records presents limited evidence concerning these activities. Needless to say, the perspec-tives of the clients of underground banks have rarely found a place in scholarly examination or in news reports.