China's war against underground banking and capital flow yielded solid results as the country uncovered $148 billion worth of illegal trades.

The investigations are carried out by the State Administration of Foreign Exchange and are focused on capital outflows and foreign exchange transactions.

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The drive has already cracked 56 cases of illegal foreign exchange transactions this year so far.

The State Administration of Foreign Exchange said it has seized $8.43 billion in foreign exchange.

Earlier this year, SAFE ordered the suspension of sales and foreign exchange settlement at three banks indicted for inadequate control measures, including the failure to authenticate checks. Such non-compliance led to various corporates carrying out fake trades for buying foreign exchange.

In an email statement, SAFE stated it plans to continue monitoring irregular cross-border capital flows. It will also take strong steps against underground banks to ensure steadiness of foreign currency market.

China is currently trying to strike a balance between diversification of its funds outside of the country and to manage the challenges posed by currency outflow.

Fund outflow tend to put pressure on domestic currency. It also tends to accelerate further capital outflow.

The Chinese yuan has experienced continuous depreciation in its value, declining one percent in the current month.

The decrease in yuan holdings in offshore banks also point to the preference for foreign currencies. The outflows are likely to increase in the coming months due to sluggish economy.

According to Bloomberg, China has stable currency reserves. However, the country experienced $27.7 billion worth of outward yuan payments in the month of August. This figure is drastically higher than the five-year monthly average of $4.4 billion for the period running through 2014. 

TagsThe State Administration of Foreign Exchange, yuan, Capital Outflows