China steps up crackdown on underground banks, regulator says

BEIJING (Reuters) - China will step up its crackdown on underground banks this year as the country's economic slowdown and market volatility has sparked a wave of capital outflows, according to a senior official in the country's foreign exchange regulator.

The State Administration of Foreign Exchange "will continue to work with the public security bureau and other departments to focus on cracking down on underground banks, to intimidate people who use underground banks, to block channels for underground bank transactions," Zhang Shenghui, head of SAFE's inspection division, was quoted as saying by the Economic Information Daily, a state-run newspaper.

Transactions by underground banks topped 1 trillion yuan last year and police, the central bank and SAFE uncovered one case involving transactions totalling $64 billion.

Underground banking presents an increasingly complex threat to China's financial security, encompassing issues from financing for drugs and terrorism to tax fraud, the Ministry of Public Security said last year.

(Reporting by Sue-Lin Wong; Editing by Simon Cameron-Moore)