News Content

204pc fake invoice surge indicates belief in coming yuan devaluation

CHINA's problem with fake trade invoices appears to be getting worse as imports from Hong Kong surged a record 204 per cent in April, Bloomberg reported.

This puts greater focus on a key method of getting money out of China as fears grow of a weakening yuan.

"An expectation of yuan depreciation will result in a massive outflow of funds," said Iris Pang, Hong Kong economist for greater China at Natixis Asia.

"As long as channels under the capital account are still semi-closed, trade will remain a shadow channel for fund outflows."

While China enforced rules on moving capital offshore, after $1 trillion departed last year, those seeking to get money out disguise cash flows as payment for goods exported or imported to foreign countries or territories, especially Hong Kong.

"These fake imports are quite apparent," said Kevin Lai, chief economist for Asia excluding Japan at Daiwa Capital Markets in Hong Kong, citing the size of the increase in April.

Over-invoicing for goods gives a company or individual the opportunity to skirt capital controls and shift money offshore.

Authorities have responded to evidence of the activity by clamping down on the myriad of illicit channels used, from curbing purchases of overseas insurance products to stopping friends and family members from pooling their $50,000-a-year quotas to get large sums of money out.

While the value at $2.1 billion is relatively small, the suspected use of phantom goods to secure hard currency shows concern persisting among Chinese savers and companies that the yuan will weaken, said Bloomberg.