Scrutiny increases after trade mismatch between China and Hong Kong

Wide gap between figures from Beijing and HK on cross-border goods flows heightens scrutiny of the mainland's overall trade performance

PUBLISHED : Wednesday, 29 January, 2014, 5:02am
UPDATED : Wednesday, 29 January, 2014, 5:02am

The mainland's trade numbers, distorted by fake exports last year, are set to come under renewed scrutiny after a discrepancy between Hong Kong and mainland figures for bilateral trade widened to the largest in eight months.

Hong Kong's imports from the mainland China fell 1.9 per cent last month from a year earlier to HK$176 billion, the city's statistics department said on Monday. That compares with US$38.5 billion in exports to Hong Kong reported earlier this month by the mainland's customs administration, up 2.3 per cent.

Economists are split on how to interpret the latest numbers, which follow reports last year that invoices for fake exports were being used to disguise capital inflows, inflating the mainland's trade data before regulators cracked down on the practice in May.

Exaggerated overseas shipments would mean that global demand is weaker than mainland statistics indicate.

"From the last few months' data, we have seen hints that some Chinese exports are fake and in fact that reflects hot money inflows," said Zhang Zhiwei, chief China economist at Nomura in Hong Kong. The discrepancy would abate as yuan appreciation slowed this month and the next, said Zhang.

The mainland's exports to Hong Kong last month exceeded the city's reported imports from the mainland by about 70 per cent, the biggest difference since April.

Hong Kong reported on Monday that its total imports rose 1.8 per cent year on year last month, while exports were unchanged.

The mainland said on January 10 that its exports rose 4.3 per cent year on year last month while imports grew 8.3 per cent, helping it claim the title of the world's biggest trading nation last year, passing the United States.

Shen Jianguang, chief Asia economist at Mizuho Securities Asia in Hong Kong, said the gap between the mainland's reported increase in exports to Hong Kong and the city's reported decline in imports was not big enough to raise any red flags when compared to the difference early last year. That was because the mainland recorded exports when goods left, while Hong Kong waited until 14 days after items arrived in port to record them as imports, Shen said.

"The data is highly consistent now," said Shen. The issue of fake exports had "almost disappeared", he said.

Another possible explanation for the discrepancy was "round tripping" of goods that were exported from the mainland to Hong Kong and then back to the mainland, Australia & New Zealand Banking said in a report on Monday.

"The round-tripping trade has become an avenue to fuel China's capital inflows", as the current account might have been "improperly used as an alternative way of liquidity injection", economists Liu Li-gang and Raymond Yeung wrote. An interest rate gap fuelled the practice and policymakers on the mainland and in Hong Kong "need to closely watch the potential risks such activities present to the financial system".

The yuan rose about 0.7 per cent against the US dollar last month, the biggest monthly gain since April. The mainland's foreign exchange reserves, the world's largest, grew US$157 billion in the fourth quarter to US$3.82 trillion, the People's Bank of China said this month.

"We can definitely not rule out there is very creative accounting and data reporting going on to again dress up additional inflows as exports because the incentives are there again" with the exchange rate and mainland borrowing costs, said Louis Kuijs, chief China economist at Royal Bank of Scotland in Hong Kong.

At the same time, other sources indicated that the "improvement is real" in global demand for mainland exports, said Kuijs, who previously estimated that fake invoices inflated the mainland's 2013 export gains by about 2 percentage points.