Trade between Hong Kong and Guangdong artificially skewed; Firms inflate trade data to cash in on currency exchange gains

Firms inflate trade data to cash in on currency exchange gains

Staff Reporter

2013-05-15

Many Chinese trading firms have been inflating their performance without the knowledge of the local banking system, Shanghai’s First Financial Daily has reported. The news comes in the wake of unusually high import and export data which was recorded during both March and April and prompted China’s State Administration of Foreign Exchange to issue a notice that it will enhance inspections of firms’ transactions and adjust policies for goods which leave the country. China’s bilateral trade with Hong Kong jumped 66% year over year for the first four months ending April 30. The mainland’s exports to Hong Kong grew 92.9% in March from the same period a year ago, which is the highest growth reported since March 1995. Many companies are found to have made up or adjusted their import data in order to receive foreign currency loans and increase their credit limit from local banks, the report said. Many banks in China offer currency clearing services for international firms as part of the central government’s policies to help domestic firms expand globally and to internationalize the renminbi. The special clearing service is a win-win for both the companies and the banks. The services generate certain revenue for trading firms, which helps them cut down on overall expenses, and also helps the banking sector earn service fees. Companies have to make a full down payment, which translates into sizable and virtually risk-free deposits for banks, said a risk manager at a bank in Shenzhen, who wished to remain anonymous due to the sensitive nature of the issue. The practice may result in the banks’ loose regulations on trading firms’ applications for the clearing service, he said. There is mounting speculation that the growing trading figures might be inflated by companies that routinely moved goods in and out of special trade zones to claim tax rebates. For the first four months ending April 30, exports from Guangdong province rose 35.6% from a year ago. Of that increase, Shenzhen’s share accounted for more than 90% of the growth due to the city’s special trade zones which allow for smoother processing for exports.

Trade between Hong Kong and Guangdong artificially skewed

Staff Reporter

2013-05-14

China’s total trade reached 6.12 trillion yuan (US$995 billion) in the first quarter of the year, marking year-on-year growth of 13.4%, after excluding the effects of foreign exchange. The country recorded an 8.4% increase in exports for the quarterly period ending March 31, the Guangzhou-based Southern Weekly reports.The export growth has been attributed to a boom in trade between the mainland and Hong Kong during the first three months of the year, which saw a 71.2% increase from the same period last year.

The surge in trade between the mainland and Hong Kong was thanks to increased trade between the city and Guangdong province, which reached US$84.26 billion in the first quarter of this year, up 91.6%s from 2012, the report said.

Exports from the free trade zones in Shenzhen to Hong Kong grew 8.8 times in the first quarter of 2013 compared with the same period last year, the report added.

The data regarding exports, one of the major forces behind China’s economic growth, caught the attention of economists and also raised questions about the truth behind the first-quarter figures.

Guangdong customs statistics showed that the exports from province during the first quarter were mostly in the mechanical, electrical and new hi-tech sectors. The export of mechanical and electrical products recorded a year-on-year growth of 40% for the quarterly period, while hi-tech products saw an increase of 64.4%.

Reporters who interviewed traders of electronic devices and equipment in Guangdong found most companies to have a pessimistic view of the market. Citing trade index analyst Zheng Qun, the report said many manufacturers in the electrical appliance sector complained of a recession during the first quarter of the year.

The phenomenon suggested that exports have not really risen but rather that figures had been inflated, likely due to the fact that local officials were told to maintain export growth figures amid the global slowdown.

In order to carry out the orders of the central government, some local administrations had cargo shipped to the Futian Free Trade Zone in Shenzhen to be transported to Hong Kong and shipped back the next day, thereby increasing the volume of recorded trade, the report said.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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