China’s “surprisingly strong” import growth in the first four months may have been inflated by fake invoices as companies circumvented capital controls to move funds into China, according to Nomura Holdings Inc.
A 28 percent slump in the value of import tariffs in the first quarter compared with a year earlier casts doubt over the credibility of official data that show imports (CNFRIMPY) rose 8 percent in the period, economists Zhang Zhiwei in Hong Kong and Wendy Chen in Shanghai wrote in a research note today. The two indicators have generally moved in tandem in the past, they said.
Skepticism over import figures in the world’s second-biggest economy adds to concerns that the nation’s trade data are inaccurate after analysts at Bank of America Corp. and Royal Bank of Scotland Group Plc said export figures this year were inflated by fabricated reports. Hot money flooding into China helped push the yuan to a 19-year high yesterday and regulators this week announced a crackdown on companies using trade reports to disguise speculative inflows.
“Some companies may have moved products between Hong Kong and China’s special trade zones to circumvent capital controls and move funds into China,” the Nomura economists wrote. “Such trade is free of import tariffs, so it pushes up imports and exports but not import duties.”
The country’s customs bureau this week reported an unexpected acceleration in export growth in April from a year earlier, even as shipments to the U.S. and Europe fell. The 14.7 percent surge may have been overstated by 9 percentage points, according to RBS.
The drop in revenue from import tariffs in the first quarter was more than the 24 percent contraction in the first quarter of 2009, Nomura said. Imports plummeted then because of the global financial crisis.
Companies that over-invoice shipments from Hong Kong to special trade zones in China can shift funds across the border to capitalize on high-yielding investment products offered by so-called shadow banks and also benefit from any yuan gains, Zhang said in a telephone interview.
“You could borrow from Hong Kong at a very low interest rate and then buy the products in China and at the same time benefit from the exchange-rate appreciation,” said Zhang, Nomura’s chief China economist.
The customs administration didn’t immediately respond to faxed questions from Bloomberg News seeking comment on Nomura’s report today.
Zheng Yuesheng, a customs administration spokesman, said last month that China is investigating possible fraud behind first-quarter export growth and said the practice of false trade declarations “does exist but is definitely not mainstream.”
--Kevin Hamlin, with assistance from Zhou Xin in Beijing. Editors: Nerys Avery, Scott Lanman
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