[HONG KONG] The discrepancy between what China exported to Hong Kong and the former British colony imported from the mainland narrowed in October but shows speculative money disguised as trade remains rampant.
The shortfall between the two shrank from September, the year's peak, but remains well above the average gap for this year, data shows.
Hong Kong's annual imports from China in October rose 4.4 per cent to HK$179 billion (US$23.08 billion), according to government data on Tuesday. This was against Chinese exports of US$32.74 billion to Hong Kong, a 24 per cent rise from a year earlier and a 34 per cent jump from September, official data showed earlier this month.
The difference between the two sets of data narrowed by more than a quarter to US$9.67 billion from US$13.5 billion in September, its biggest gap so far this year. That is well above the average for the first nine months of US$7.4 billion, according to Thomson Reuters calculations indicating fake-invoicing remains rampant.
Raymond Yeung, an analyst at ANZ in Hong Kong said arbitrage flows and fake trade "lost some momentum." "However, as long as the interest rate difference between China and overseas markets exists, hot money will continue to flow into China to buy wealth management products or just save it in banks," he said.
While Beijing keeps strict capital controls on the movement of yuan across its borders, trade restrictions have been virtually dismantled in recent months with companies free to move the currency, if backed by trade.
That increased leeway for companies to move the renminbi across borders has kept apace with China's drive to promote its currency in global trade and settlement since 2009.
Interestingly, that has also coincided with the growth of fake trade flows across borders as speculators look to take advantage of an appreciating currency and relatively higher yields in the onshore market.
Analysts said some difference between China and Hong Kong trade figures is inevitable as regulators use different baskets and systems to measure the volume of trade, but the widening gap in recent months has raised concerns that speculative capital flows are being masked as routine trade.
The Chinese yuan has gained nearly 2 per cent since May in the face of a resurgent dollar, which has gained more than 10 per cent against a basket of its trade-weighted currencies, fanning the growth of such speculative flows.
Even with a surprise rate cut on the mainland last week, Chinese interest rates are among the highest in the emerging market complex while the launch of a landmark scheme connecting both the equity markets in Hong Kong and Shanghai have boosted equity markets on both sides of the border, further attracting such flows.
China's jewellery and precious metal exports rose to 187 per cent from a year earlier in October, but the pace of increase moderated from the previous month as authorities stepped up their investigations into fake trade practices, analysts said.