Date
25 March 2017
Firms may be inflating invoices for trade between Hong Kong and the mainland to skirt capital controls or profit from changes in the spread between the onshore and offshore renminbi. Photo: HK govt
Firms may be inflating invoices for trade between Hong Kong and the mainland to skirt capital controls or profit from changes in the spread between the onshore and offshore renminbi. Photo: HK govt

Fake trade invoicing eyed as China, HK figures differ

The gap between mainland China’s reported exports to Hong Kong and the shipments the city reported widened in December, suggesting currency-market swings may have spurred a fresh round of fake trade invoicing.

The mainland recorded US$1.94 of exports to Hong Kong last month for every US$1 in imports Hong Kong registered from the mainland, leading to a US$22.3 billion difference between the two data sets, Bloomberg calculations showed.

That’s the highest gap since March 2013.

Tuesday’s data from the Hong Kong government tallied imports from the mainland at HK$183.7 billion (US$23.7 billion) in December.

On Jan. 13, the Beijing-based Customs General Administration announced December trade data showing shipments to Hong Kong had surged 10.8 percent from a year earlier to US$46 billion.

The discrepancy suggests China’s trade recovery in December was inflated by fake invoicing to skirt capital controls and profit from the difference between the renminbi’s exchange rates in onshore and offshore currency markets.

In contrast to the fake invoicing in 2013, when the government said export and import figures were overstated as a means to bring money into the mainland, the practice now has more to do with capital outflows from the mainland.

Outflows jumped in December, with the total for the year reaching US$1 trillion, Bloomberg Intelligence estimates showed.

“The divergence of trade data indicates a potential use of the trade channel for financial arbitrages,” said Raymond Yeung, a Hong Kong-based senior economist at Australia & New Zealand Banking Group Ltd.

Given how the spread between the onshore and offshore yuan widened in December, exporters and importers “may move funds across the border through trading with offshore affiliates”, Yeung said.

“By blowing up trade figures, traders may potentially receive a larger forex quota to move their funds abroad.”

After China’s trade data were released, economists including Iris Pang at Natixis SA and Larry Hu at Macquarie Securities Ltd. raised the possibility it reflected fake invoicing.

While China’s government has strict rules on importing capital, those seeking to exploit moves in the renminbi can evade limits by disguising money inflows as payment for goods exported to foreign countries or territories, especially Hong Kong.

Other figures from Hong Kong and the mainland also tell different stories.

While China’s General Administration of Customs said imports from the city surged 65 percent in December from a year earlier, Hong Kong said Tuesday that total exports to the mainland increased a mere 0.9 percent from a year earlier.

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