Recently, the Chinese Ministry of Public Security announced its crackdown on the “money exchange gangs” providing large cash exchanges for gamblers and their associated underground money changers. Economic experts believe that the authorities’ efforts to combat these gangs are related to the recent investigation into tax evasion over the past 30 years in China, aimed at stemming the outflow of funds. Insiders familiar with underground money changers, including those from prominent families, have also indicated that the deeper purpose behind the crackdown on these gangs is to block the gap in fund outflows and to restrain political opponents.
On July 5th, the Chinese Ministry of Public Security held a press conference to brief the media on the recent deployment of nationwide public security agencies to combat the illegal activities associated with the “money exchange gangs.”
The Jilin Public Security Bureau reported the arrest of a certain Quan for engaging in illegal currency exchanges in Macau multiple times, involving an amount of 10 million Chinese yuan (approximately $1.38 million). Meanwhile, the Jiangxi Public Security Bureau disclosed the disruption of a case involving the sale of travel documents by Su Meimei and others, leading to the arrest of over thirty individuals involved and the identification of more than a hundred illegal immigrants engaging in illicit foreign exchange activities in Macau.
The Guangdong Province’s Zhuhai City Public Security Bureau reported the apprehension of 13 criminal suspects, the dismantling of three underground money changers, the seizure of 100,000 Hong Kong dollars (approximately $13,000) on-site, and the freezing of 3.9 million Chinese yuan (approximately $540,000) in relevant funds. Suspects such as Chen Yuxia used an international travel agency as a cover to provide illegal foreign currency exchanges for transit travelers and gamblers, amounting to 200 million Chinese yuan (approximately $27.56 million). Meanwhile, suspects like Li Wei operated under the guise of a business company to exchange renminbi and Hong Kong dollars for transit travelers, illicitly profiting an amount of 800 million Chinese yuan (approximately $110 million).
Officials from the Chinese Ministry of Public Security revealed at the press conference that the “money exchange gangs” would exchange Hong Kong dollars through underground money changers in locations like Zhuhai before using the “ants moving house” approach to transport the cash to Macau. In Macau, they would solicit clients near casinos and hotels to engage in currency exchange transactions, involving the transfer of Hong Kong dollars in cash and domestic Renminbi account transactions.
The crackdown on the so-called “money exchange gangs” and underground money changers amid the downturn in the Macau gambling industry has sparked various discussions.
Yi Qiwei, a member of the Communist Party’s third generation with years of experience in Hong Kong and Macau and money laundering activities, explained to Dajiyuan that “exchange” and “usury” are two essential services in the Macau gambling industry. Since the Renminbi cannot be freely exchanged, but there is a significant demand for exchange domestically, the free flow of capital in Hong Kong and Macau has become crucial for currency exchange and fund outflows.
He provided an example of transactions involving 700 million Hong Kong dollars (approximately $89.66 million), with a daily turnover of around 20 million Hong Kong dollars (approximately $2.56 million) sustained over several days. Such large-scale transactions occur regularly.
Yi Qiwei, knowledgeable about the internal operations of the “money exchange gangs” and underground money changers, emphasized that as long as Renminbi cannot be exchanged freely, these groups will continue to exist in various forms.
He outlined four main categories of exchange demand in China: 1. The needs of government officials; 2. Business owners involved in illegal activities requiring money laundering; 3. Commercial demands exceeding government exchange quotas; 4. Groups like international students.
According to Yi Qiwei, the usual operation involves exchanging millions of Renminbi (over $138,000) into designated accounts domestically, then selecting two or three ways to withdraw Hong Kong dollars and other foreign currencies in Macau. These methods include having an account in VIP rooms at Macau’s casinos for withdrawing Hong Kong dollars or obtaining a black credit card for withdrawals at various casinos in Macau, and even potentially exchanging foreign currencies at other casinos like those in Las Vegas.
“It has been operating like this for decades. It’s not ‘ants moving house’; it operates under the guise of trade companies, among others. In reality, the government tacitly approves it,” Yi Qiwei explained. “Government officials have exchange demands in this regard, and the intermittent crackdowns are essentially due to massive fund outflows involving ‘politics’ reasons.”
Drawing parallels with the incident involving Xiao Jianhua tied to Xi Jinping’s financial power play in 2015, Yi Qiwei mentioned Xi’s crackdown on political opponents. By cutting off the opponents’ financial sources, it becomes easier to constrain them. Following the implementation of the National Security Law in Hong Kong and the arrest of the Sun City Group’s owner, Zhou Chao Hua, Yi observed that the clean-up in Hong Kong and Macau is nearly complete. This will make it more challenging for Chinese individuals to move funds out of the country in the future.
Economist Li Hengqing from the US Information and Strategic Research Institute stated to Dajiyuan that the true objective of the Chinese Communist Party’s crackdown on the “money exchange gangs” is not merely to address associated illegal activities but to use it as a pretext to block fund outflows.
He highlighted two main factors driving the urgency for affluent individuals in China to transfer their funds abroad. The first factor involves recent coordinated tax enforcement and the thirty-year retrospective examination of tax evasion. The second factor is the increasing pressure from Renminbi depreciation. Faced with these pressures, it can be said that now is the final opportunity for wealthy individuals in China to move their assets.
Li Hengqing added, “The Chinese government is truly short of money now, and the ordinary people are also struggling financially. Therefore, the authorities are targeting wealthy individuals and using tax investigations as a pretense to start collecting from them, while concurrently cutting off their financial escape routes by cracking down on ‘money exchange gangs.'”
According to Li Hengqing, under the multiple pressures from domestic and international geopolitics and economics, Xi Jinping aims to return to a planned economy era, with implications concerning national borders. In this broader context, the tightening trends in official capital flows between Shanghai and Hong Kong, Shenzhen and Hong Kong, and the significant number of Chinese individuals investing in insurance and financial products in Hong Kong banks in the past few years are key points to monitor regarding domestic political trends.