Commercial banks in Shenzhen, South China's Guangdong Province, recently imposed limits on cash withdrawals in order to curb illegal money outflow to Hong Kong, China Securities Journal reported Thursday.

The move, although a bit extreme, may be a heavy blow to those involved in the rampant outflow of illegal capital into the Hong Kong stock market.

According to policies recently adopted by most Shenzhen banks, individual depositors can withdraw no more than 30,000 yuan (US$4,037.69) in cash per day, 50,000 yuan in a week, or 200,000 yuan in a month. For enterprises, the limit is 100,000 yuan, 200,000 yuan and 500,000 yuan accordingly. The upper limit for ATM withdrawal remains at 20,000 yuan.

However, inter-bank withdrawals via ATM have been suspended altogether. Some banks loaded their ATM machines with less than 100,000 yuan per week in fear of excessive withdrawals.

Earlier, there were no particular limits on cash withdrawal via bank counters, although advance notification is still required if the amount is higher than 100,000 yuan.

Sources said that the Shenzhen branch of the People's Bank of China (PBoC), the financial supervisor of the region, asked local banks to limit cash withdrawals in an unwritten notice last week. It also cut down cash positions of local commercial banks. The resulting liquidity concerns have forced banks to limit clients’ cash withdrawals.

The paper quoted a banking insider as saying that the move was aimed at preventing a mass outflow of mainland capital into neighboring Hong Kong. Mainland capital has been pouring in as Hong Kong's bullish stock performances attract investors looking for bargains.

According to the source, mainland investors take cash from local banks and send it to underground private banks, which then wire the equivalent Hong Kong dollars via illegal channels to investors' Hong Kong accounts.

Shenzhen's cash drought was also precipitated by mainland travelers withdrawing cash from banks in Shenzhen before visiting Hong Kong.

As a result, it is estimated that since 2001, cash supply in Shenzhen has increased dramatically every year, topping major cities in China for six years in a row. In the first nine months of this year, net cash supply in Shenzhen grew close to half of the nation’s total.

In that sense, the cash withdrawal limit will may help curb the trend and ensure Shenzhen's financial stability.

In addition, the move will also fight gold and jewelry smuggling between the mainland and Hong Kong, a trade greatly backed by cash flow, according to the paper.

The Shenzhen branch of the PBoC said the temporary measures will not adversely affect local residents since it only targets abnormal and illegal trading. Instead, it will help purify the local financial environment and lead to better bank service.

According to the banking regulator, residents' bulk transactions such as property and automobile purchases were mainly made using money transfers instead of cash. Several non-cash channels are also available to cover daily payment needs.

However, some still worried that banks' inefficient transfer systems will cause inconveniences or even troubles under current circumstances. (By Ding Qi)