China probes use of trade finance instruments to facilitate capital outflows

China’s foreign-exchange regulator is investigating how trade finance instruments may be used by some of the country’s largest companies to facilitate capital outflows.

The investigation is part of the Chinese authorities’ efforts to clamp down on capital outflows and debt, but investigators are also looking to see if there are any improprieties in the way these outflows are managed and whether information has been falsified to facilitate them.

Potential improprieties

The State Administration of Foreign Exchange (SAFE) is probing for potential improprieties involving a financial offering called an overseas loan under domestic guarantee.

This is a financing in which borrowers pledge collateral in China to receive bank guarantees or letters of credit, which are then used to take out loans from overseas branches of Chinese banks.

Investigators suspect that by using this financing mechanism, some of China’s largest companies may be using domestic assets as collateral to obtain loans overseas, a practice the authorities want to curtail.

Falsified information

The companies under investigation may not have been involved anything illegal, but the Chinese authorities are looking to close loopholes that allow companies or individuals to channel capital outflows.

SAFE investigators are however reported to be looking to see if any of the companies currently being examined may have falsified information or inflated the value of their assets to receive guarantees.

Categories: Trade Based Financial crimes News

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