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China October trade data shows signs of manipulation, hot money inflows: state newspaper

Monday, November 10, 2014 - 09:27
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China's exports and large trade surplus in October pointed to signs of manipulation and inflows of speculative hot money, the official Shanghai Securities News said on Monday, suggesting that firms continue to over-invoice trade deals to avoid capital controls.

[SHANGHAI] China's exports and large trade surplus in October pointed to signs of manipulation and inflows of speculative hot money, the official Shanghai Securities News said on Monday, suggesting that firms continue to over-invoice trade deals to avoid capital controls. "There are signs that faked trade deals have raised their head of late," the newspaper said in a report, quoting economists. "The possibility of hot money inflows cannot be excluded as Chinese mainland's trade with the ASEAN nations, South Korea and Hong Kong grew rapidly in October, together with a jump in exports of precious metals," it said.

On Saturday, China said its exports rose 11.6 per cent in October from a year earlier, slowing from a 15.3 per cent jump in September, but slightly better than expected.

Imports rose an annual 4.6 per cent in October, though slower than a 7 per cent rise in September. That left the country with a trade surplus of a near record-high of US$45.4 billion for the month.

The latest suspicions about the accuracy of the trade figures follow similar questions over September data, meaning net exports likely gave less of a lift to third quarter economic growth than reported figures suggest. It also adds to persistent signs of fragility in the world's second-biggest economy.

The September data showed a substantial gap between what China said it exported to Hong Kong and what Hong Kong said it imported from the mainland. Economists say signs of hot money inflows suggest firms may be trying to evade capital controls by over-invoicing sales of items such as precious metal sales.

In the October figures, customs data showed China's exports of precious metals and jewellery rose 187 per cent from a year earlier, although the pace eased from a 678 per cent jump in September.

Economists pointed out that high per unit valuations of precious metals made them the most convenient vehicle for trade manipulation, the newspaper said.

Lian Ping, chief economist at Bank of Communications in Shanghai, said China's reforms including an upcoming Shanghai-Hong Kong stock connect, attracted hot money flows into the mainland, the newspaper reported. "While there have been no absolute figures to prove it, some data is really suspicious," Mr Lian was quoted as saying.

The long awaited plan to connect the Hong Kong and Shanghai stock exchanges will go live on Nov 17, the Hong Kong bourse said in a statement earlier on Monday.

Economic underperformance of South Korea and countries within the Association of Southeast Asian Nations (Asean) meant import demand for these countries from China should not be so strong, Lian said.

The recent widening discount of the Chinese yuan in the offshore market in Hong Kong against the onshore market in Shanghai might also have sparked arbitrage activities, the report quoted economists as saying.

REUTERS