An organization that inspects 40 percent of travellers and cargo going out of the country, Guangdong Customs has reported a sudden surge in the smuggling of hard currencies.

In March, the number of such cases soared by about 90 percent over the figures for January and February. The amount of money involved in these cases grew by 94.4 percent in the month to 10.1 million yuan (US$1.22 million).

These figures remained high in April. There were a total of 143 such cases during the first four months this year, involving a total amount of 29.9 million yuan (US$3.6 million) in foreign currencies.

Wu Sihai, an official with Guangdong Customs, said the increase has become hot on the heels of the announcement at the end of February by the China Securities Regulatory Commission (CSRC) allowing domestic residents to open B-share accounts and engage in B-share trading with legally held foreign currencies.

Anticipating a strong capital influx into the B-share market, the CSRC also ruled in February that, until June 1, Chinese investors could only use foreign exchange savings deposited before February 19 to buy B shares.

However, in order to take immediate advantage of the good prospects in the market, many Cantonese looked for ways to enter the market. One way was to trade in the name of their Hong Kong relatives, who were not restricted by the deadline rule.

After smuggling foreign currencies to Hong Kong, mainland people opened accounts and then transferred the money back to B-share capital accounts on the mainland to trade on the B-share markets, according to Wu.

"Such smuggling is a short-term activity and is expected to shrink this month because the CSRC now only allows trade using foreign currencies deposited after February 19," he said.

In China, the hard-currency smuggling is a serious crime because the domestic currency is not freely convertible as the government wants to control its foreign currency reserves.

Only limited amounts of foreign currency can be taken out of the country.

B shares are stocks issued by domestic companies listed on the Shanghai and Shenzhen stock exchanges, and are only traded in US dollars in Shanghai and in Hong Kong dollars in Shenzhen. Before the CSRC opened the B-share market to domestic investors, only overseas individuals and investment funds were allowed to invest in the market, which has a lower price-to-earnings ratio than the A-share market.

(China Daily 06/13/2001)