An apparent surge in Chinese exports to Hong Kong in September raised concerns that the trade finance system is increasingly being used as a vehicle for illegal money flows.

Now, new data confirms a substantial gap between what China said it exported to Hong Kong and what the island said it imported from the mainland.

Over-invoicing
Hong Kong reported more than a one-third surge in imports compared with levels a year ago, which in itself raised concerns that the trade finance system is becoming increasingly infiltrated by money launderers using over-invoicing and over-reporting techniques.

The concerns have now been compounded by new trade data that show very substantial discrepancies.

Data discrepancies
While Hong Kong reported at the end of October that its September imports from the mainland rose by 34%, data released by China shows that its exports to Hong Kong had increased by just 15.3% compared with a year earlier.

Aside from this discrepancy, the increase in Chinese exports is substantially steeper than the anticipated rate based on the average 12% year-on-year increase recorded over recent months.

Fake exports
According to chief economist at Everbright Securities, Xu Gao, “signs of distortion might have re-emerged in the trade data.”

The former World Bank economist also pointed out that precious metals featured prominently in the trade data, and suggested that Chinese government policies to support exports “seem to have stimulated fake exports instead.”

Categories: Trade Based Financial crimes News