The ICBC employee quoted one of his friends who worked for the Bank of China as saying that in May this year the Bank of China conducted an investigation of its staff who had borrowed money to trade in the stock market. Because of this, many employees withdrew money from the stock market and the Beijing branches of Bank of China paid back tens of millions of loans in renminbi to the bank. There was no definite answer from the bank's management, but many who work for the banks admit such practices have occurred.

It is widely known that many people are investing in the stock market by borrowing money from banks and some have even mortgaged their houses or cars to get loans in order to invest in the stock market.

Due to negligence in supervision, the CBRC and banks cannot provide a definitive number of loans being misused in the stock market.

In addition to bank loans, other public funds have also been invested in the stock market illegally. Several cases of illegally invested social insurance fund or housing funds in the stock market have been uncovered and their culprits prosecuted.

Meanwhile, a large amount of foreign capital is also illegally entering the Chinese stock market.

Li Yafang, a member of the Chinese People's Political Consultative Conference, said that a lot of foreign capital has poured into China due to the prosperous Chinese economy and expectations of renminbi appreciation. Some foreign capital intended for investment in specific projects has been diverted to the stock market. "Of all the money flowing into the Chinese stock market last year, at least 300 billion yuan is seemingly from out of nowhere," said Li Yafang. Judging by this trend, Li believes international speculative money invested in the stock market was on the rise.

Words of warning

Zhao Xijun, a professor of finance at Renmin University of China, argues that the misused money is due to the immaturity of the Chinese market. Zhao believes the most important and urgent task now is to strengthen management and supervision over banks as well as people who borrow money from the banks.

Zhao said that mere punishment would not solve the fundamental problem.

Li Yang, head of the Institute of Finance and Banking under the CASS, echoed Zhao's opinion. "The CBRC punished some institutions who had different roles in the misuse of loans," said Li. "Some loans were directly put into the stock market, and this practice must be strictly forbidden and punished. But some of the loans were indirectly invested in the stock market, and this kind of behavior requires careful supervision."

Li said it is normal for bank money to be invested into the stock market by means of mortgage, pledge or money management, but stricter supervision must be conducted on loans having no specific purpose. "Not all bank loans in the stock market are illegal," Li said. "We must crack down on the money which is illegally invested in the stock market."

A report from the Shanghai Securities News suggested that banks should take the primary responsibility, as any money used in this way is first taken out of banks.

Li Yafang said the government must enhance supervision on cross-border money flow and crack down on currency speculation. She said international hot money usually enters China through fraudulent foreign trade or through underground currency exchange. She suggested all relevant departments should make concerted efforts to share information and investigations over such illegal activities.

On June 21, the State Administration of Foreign Exchange announced that 29 local and foreign banks would be punished for using hot money in the local stock markets.