Illicit capital flows into the mainland from Hong Kong through over-invoicing from 2012 to March last year are estimated to have reached US$155 billion, sparking fresh concerns over currency speculation. SCMP, January 9 So says Global Financial Integrity, a Washington-based research and advocacy group. Tick the boxes - name, geographic base and description. Yes, we have angels here again, far removed from Planet Earth. The angelic argument in this case is that mainland exports to Hong Kong shot up last year while overall mainland export growth was soft. This must have been, they say, because these exporters inflated the payments they received for their goods. Right, let's work out how this over-invoicing works. You ship goods to Hong Kong and you bill your customer for more than you said you would and then you take the money back across the border and invest it in China. Now, first of all, how does your customer stay in business if he keeps paying too much this way? Assuming that it was actually your own money, why would you expose yourself to the Beijing taxman by taking money you had hidden away from him abroad and bringing it back in as corporate profits? And anyway, why should Beijing object to Chinese citizens investing in China, particularly at a time when the balance of payments showed an unwelcome outflow of private capital? Hmmm … lots of questions here. They have unusual ways of looking at things in heaven, these angels do. Mind you, I fully accept that Hong Kong is a big conduit for investment in the mainland and that much of the money came from the mainland in the first place. It is done by under-invoicing, not over-invoicing. Our government calls it "rate of re-export margin". That confuses things nicely. What the mainland exporter does is sell his goods at cost to a wholly owned agent in Hong Kong or further abroad and only tack on his own margin when the goods are out of the country. He can then bring this money in as foreign direct investment, which gives it special privileges, and he commonly does it by sending it through Hong Kong first as FDI. The line chart shows you how it works. Notice first how closely matched our inflows and outflows of FDI have been. What comes in goes right back out. And now look at the scale. In the 12 months to September last year, FDI outflows from Hong Kong amounted to HK$785 billion. That's billion, not million, and these are official government figures. It amounts to 37.4 per cent of gross domestic product and does not include securities investment or syndicated lending. Does the word "boggling" come to mind? Put it in further perspective. The bar chart shows you what FDI outflows come to as a per cent of GDP elsewhere in Asia and the world. Only Singapore is remotely comparable. Singapore plays the same game with Malaysia and Indonesia that Hong Kong plays with the mainland. And now to tell the angels that this is just fine and there is nothing wrong with it, mission impossible.