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. Last Updated: 07/27/2016

Shanghai's Hot-Shots Playing the Markets

SHANGHAI -- From a hotel bedroom stacked with electronic wizardry, one of Shanghai's young investment hot-shots plays the international currency markets.

Living on room service, and sleeping in snatches, he tracks the foreign-exchange markets from Tokyo to London and on to New York. As he works the telephones, Cantonese pop music blares from four speakers rigged to the walls.

"I can't tell you how much I make," says the former factory worker, watching the rates flicker on his computer screen. "But I win more often than I lose."

Like many Chinese these days, this self-taught trader has caught the gambling bug.

He is trying his luck in a risky market using credit from one of the shadowy Hong Kong investment houses that have set up in China's coastal cities.

China has a massive $10 billion of private savings in hard currency, about $2 billion of it in Shanghai. Impatient for better returns than local banks can offer, citizens are plunging into everything from pure foreign exchange to currency futures and even Third World debt.

Savings once hidden carefully under mattresses are now spinning recklessly in global money markets.

"It's scary," said one Shanghai-based Western banker. "You're going to see a lot of big scandals."

For Beijing, the explosive growth of an unregulated financial grey market is one of the more worrying products of the country's free-wheeling capitalism.

The official media is full of stories of Hong Kong investment bucket shops whose owners have fled the country with their customers' life savings.

But government attempts to crack down on the investment sharks appear to be having only limited impact.

This month Hong Kong's left-wing Wen Wei Po newspaper reported that authorities raided six futures-trading companies in the southern city of Guangzhou. It did not say what action, if any, was taken against them.

The raids followed publication of rules in December requiring futures companies in Guangzhou to re-register their businesses.

Strictly speaking, the young trader in his $150-a-night hotel room is operating illegally. But since all he needs is a few telephone lines -- and CNN for his news -- the government can't touch him.

"All my money goes into a Hong Kong bank account. Nobody here knows what I'm doing," he says.

The rapid expansion of modern telecommunications is thwarting China's financial regulators. Anybody in Shanghai with enough money can buy a portable telephone, or a facsimile machine, or a computer and modem.

In the meantime, the need to control the financial services industry is growing more urgent.

Foreign exchange is pouring into the city through a flourishing black market and from remittances from friends and relatives abroad.

Early last year when inflation sapped public confidence in the Chinese currency, the number of foreign exchange bank accounts in Shanghai soared.

There are fears another rush into hard currency could put pressure on the local currency if inflation is not brought under control this year.

Faced with these concerns, Shanghai banks are taking a pragmatic approach: instead of trying to put the competition out of business, they are joining it.The Bank of Communications opened a corner of one of its downtown banking halls to foreign-exchange trading last month. Anybody with cash can open an account.

The Shanghai branch of the Bank of China, the country's leading foreign exchange bank, plans to go one step further by offering foreign-currency trading on margin to its customers starting this year.

Its counterpart in Guangzhou began the plan last year, with great success.

"Originally we didn't want to do this business because it's too risky," said Huang Hong, who is charge of the project. "But the demand is there."

After all, he said: "This is a market economy."