Black Market. or Should We Say Green Market?

And no, not marijuana. Every country has some existence of a black market. That said, some are much bigger and/or more harmful than others. One of China’s most prevalent black markets is that of “Black Market Banking.” The illegal trafficking of money. Which of course isn’t green in China is it?

One of the largest, most recent discoveries was that of a back operating in the Shenzhen area that reported a whopping 4.3 billion yuan worth of business transactions over a year and a half. Though this was a notable discovery, these banks are not uncommon. This, to me, is hard to imagine. How does a bank function without the knowledge of the government? Banking is a huge network. Your city bank answers to a district bank, which may answer to a regional bank, and eventually everything is passed to the Federal Bank. True, the Fed is independent of the government, but the two are so closely ties, “black market banking” in America seems inconceivable. The Economist has shown some of it’s research through this article¬†Here.

Yet, in China, these banks work underground, attracting clients for usually one of two prominent reasons. The first, is that there are individuals who are turned away or served inadequately by state banks.They are left with the sole choice to turn to the illegal money trade. The second, is more obvious: the banks give more because they are earning more. They are fewer regulations under the government’s watchful eye. There is more flexibility and consequently more appeal for clients to head “underground.”¬†0bfcd5c78a0bcc4b85c2b256_illegal_banks

Where is the majority of this money going? An estimated 33% of all the outgoing underground loans go to medium to small-sized business while a majority 55% goes to farmers. Perhaps these are the “clients” the state banks are overlooking and treating unfairly? It is also estimated that up to 90% of this money is used speculatively through the pathways of the financial markets.