Fake invoices boosted China trade by US$75b in first four months: report

Fake invoices inflated import and export data in first four months, says report

PUBLISHED : Saturday, 15 June, 2013, 12:00am
UPDATED : Saturday, 15 June, 2013, 4:05am

Fake invoicing inflated China's official import and export totals by US$75 billion in the first four months of the year, mainland media reported yesterday, citing an internal review by the commerce ministry.

An alternate estimate found that actual year-on-year export growth for January to April was only about 7 per cent, while import growth was about 6 per cent, 21st Century Business Herald reported, citing an unidentified source and an internal commerce ministry document.

The second estimate was based on excluding data from the port of Shenzhen, where much of the fraud was suspected to have occurred.

Evidence has been growing in recent weeks that the world's second-largest economy is fast losing momentum, but suspect trade data has clouded the picture for global investors.

The customs administration officially reported export growth of 17.4 per cent in the first four months of the year, while imports officially grew 10.6 per cent.

But analysts widely suspected that the data was distorted by inflated invoices used to circumvent strict capital controls and profit from appreciation of the yuan.

Reported trade growth nose-dived last month, with exports rising only 1 per cent and imports falling 0.3 per cent.

The sharp drop occurred after the customs agency promised to probe inconsistencies between export data and data on imports published by places such as Hong Kong.

Mainland China's foreign exchange regulator also issued new rules in early May strengthening oversight of trade invoicing.

The US$75 billion estimate was based on an examination of logistics data from special customs regulation zones. Such zones house bonded warehouses, where analysts suspect much of the fake invoicing occurred.

Bonded warehouses are physically on the mainland, but domestically produced goods stored there have already cleared customs and are therefore counted as exports.

Imports and exports to and from the special regulation zones increased by 130 per cent year on year in January to April, compared to only 19.1 per cent in May, after tighter oversight began.

Assuming the true growth rate for January through April was similar to the reported growth rate in May produces an estimate of US$75 billion in fake trade.