Counterfeit Invoicing Damages China’s Trade Growth

Fake invoiving and inflated export figures that it yielded have lead to slower growth rates in China’s trada data this year, which means Beijing is likely staring down missing its full-year external trade growth target of 7.5 percent.

Hit particularly hard in the first half of 2014 have been exports from mainland China to Hong Kong.

“The comparable figures last year were higher. In the first half of last year, [mainland to Hong Kong] export growth was very high and those figures might be inflated,” Trade Development Council principal economist Daniel Poon said yesterday at the release of its third quarter export index, reports The South China Morning Post.

Unusually strong growth in the early part of 2013 tipped off regulatory interest that “fake trade” could be occurring, leading to large influxes of “hot money.” Investigation turned up practices in China’s docks that essentially allowed for double issuance of invoices, and thus the same set of goods being financed against multiple times.  The  State Administration of Foreign Exchange (SAFE) has urged banks to “know more about their clients” and to make sure that trade finance was backed by real trade.

“The problem has been adjusted since April or May last year and now the figures have become normalised,” Poon said. “This ‘base effect’ led to poor mainland-to-Hong Kong export figures in early 2014.”