Under- and over-invoicing between Hong Kong and Chinese mainland may be easing

Latest figures from Hong Kong on its exports to China continue to clash with those from the mainland’s data on imports from the island, but less so than they have done in recent months.

Chinese data showed imports from Hong Kong grew more than 70.8 per cent year-on-year in June, far less than growth of nearly 204 per cent in April.

Slowing growth

Data from Hong Kong’s statistics department however showed exports to China grew by just 1.8 per cent during the period.

The slowing growth in the Chinese data likely represents a decrease in the overstating on invoices the value of imports into China or understating on invoices the value of exports from the mainland, techniques routinely used to facilitate capital flight from the mainland.

Regulatory actions

The People’s Bank of China (PBOC) has had significant success in curbing capital outflows.

It knows there is still significant leakage from China in the form of persistent import over-invoicing but, so far, measures put in place by PBOC to curb capital flight via relatively easy to use channels may have driven those wanting to transfer funds abroad into choosing illicit trade-based schemes to channel their money out of China.

Typical measures

For example, the PBOC has increased scrutiny of transfers overseas with a notable focus on checking whether violations of quotas had been used to split large capital transfers into smaller amounts spread across multiple accounts.

Some foreign banks such as Standard Chartered have been suspended from certain currency-related business in China.

Measures that do contemplate trade-based financial crime include the requirement for companies only being able to buy currencies a maximum of five days before making actual payment for goods.

Categories: Trade Based Financial crimes News

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