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China, HK Fake Invoice Evidence Mounts

China, HK Fake Invoice Evidence MountsChina, HK Fake Invoice Evidence Mounts

The gap between China’s reported exports to Hong Kong and the territory’s imports from the mainland widened in September to the most this year, suggesting fake export-invoicing is again skewing China’s trade data.

China recorded $1.56 of exports to Hong Kong last month for every $1 in imports Hong Kong registered, leading to a $13.5 billion difference, according to government data compiled by Bloomberg. Hong Kong’s imports from China climbed 5.5 percent from a year earlier to $24.1 billion, figures showed yesterday; China’s exports to Hong Kong surged 34 percent to $37.6 billion, according to mainland data on Oct. 13.

While China’s government has strict rules on importing capital, those seeking to exploit yuan appreciation can evade the limit by disguising money inflows as payment for goods exported to foreign countries or territories, especially Hong Kong. The latest trade mismatch coincided with renewed appreciation of China’s currency, leading analysts at banks and brokerages including Everbright Securities Co. and Australia & New Zealand Banking Group Ltd. to question the export surge.

“This is definitely another important piece of evidence of over-invoicing exports to Hong Kong to facilitate money inflow into China,” said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. “So we shouldn’t be too optimistic about recent export data from China.”

Doubts over the data raise broader concerns, as a surge in exports was believed to have underpinned economic growth in the third quarter. Shen said the economic outlook is “challenging” and more easing is “necessary.”

  Industrial Profits

Data today added to evidence of moderating economic growth. Industrial profits rose 0.4 percent in September from a year earlier, following a 0.6 percent decline in August – the weakest two months since mid-2012.

Gross domestic product rose 7.3 percent in the July-September period from a year earlier, the slowest expansion since the first quarter of 2009. Export demand has been a bright spot in an economy weighted by a property slump and a decline in investment growth.

Although a rapid increase in luxury goods shipments suggests some of the exports to Hong Kong should be attributed to capital inflows, exports of processed goods including the iPhone drove the September surge, said Hua Changchun, a China economist at Nomura Holdings Inc. in Hong Kong.

“The fake invoicing problem is not as severe as last year,” Hua said.

Financialtribune.com