China uncovers US$10b in fake trades

The mainland has found almost US$10 billion worth of fake trades nationwide as part of an investigation to crack down on fraudulent trade financing, the foreign exchange regulator said yesterday, while reiterating its resolve to gradually loosen foreign exchange restrictions under the country's capital account.

Wu Ruilin, deputy director of the supervision and inspection department at the State Administration of Foreign Exchange (SAFE), said the probe covered 13 provinces and cities when it started in April last year, which was expanded to 24 in 2014.

"Fraudulent trades are harmful to the economy as the problem adds to the pressure of hot money inflows and provides a channel for funds of illegal activities to flow in and out of the country," Wu said.

Some mainland firms inflated trades by fake invoicing, he said in Beijing yesterday. "[Fraudulent trades] caused inflows of hot money and even illegal cross-border capital flows," he said.

The mainland's regulatory bodies, including the SAFE, found that some companies had secured trade financing with invoices that were not backed by real trades of goods and services as unusually high exports growth sparked concerns last year. The fraudulent trade financing allowed firms to sneak money in and out of the country, evading capital controls.

Among the cases was the metal financing fraud at Qingdao port, which was uncovered in June in an investigation that showed companies had used fake receipts at the port to get multiple loans for the same cargo of metal.

Wu said the SAFE's investigation also included entities involved in the Qingdao port case and they would be handed over to the police if they were found to have broken the law. He added that some banks did not do their duty in checking authenticity of the trades and this aggravated the problem. So far, 15 cases had been handed over to the police, he said.