The gap between China's reported exports to Hong Kong and the shipments registered by the territory widened in December, suggesting currency-market swings may have spurred a fresh round of fake trade invoicing.
China recorded $1.94 of exports to Hong Kong last month for every $1 in imports Hong Kong registered from the mainland, leading to a US$22.3 billion difference between the two data sets, according to Bloomberg calculations. That's the highest gap, in both dollar terms and by ratio, since March 2013.
Tuesday's data from the Hong Kong Government Information Center tallied imports in the territory from the mainland at HK$183.7 billion (US$23.7 billion) in December. On Jan. 13, the Beijing-based Customs General Administration announced December trade data showing shipments to Hong Kong had surged 10.8 percent from a year earlier to US$46 billion.
Recommended For You
The discrepancy suggests China's trade recovery in December was inflated by fake invoicing to skirt capital controls and profit from the difference between the yuan's exchange rates in onshore and offshore currency markets.
In a twist to fake invoicing in 2013, when the government said export and import figures were overstated due to the phony trade to bring money into the mainland, the refreshed practice has more to do with capital outflows from China. Outflows jumped in December, with the estimated 2015 total reaching $1 trillion, Bloomberg Intelligence estimates show.
Offshore Affiliates Provide Opportunity for Currency Arbitrage
"The divergence of trade data indicates a potential use of the trade channel for financial arbitrages," said Raymond Yeung, a Hong Kong-based senior economist at Australia & New Zealand Banking Group Ltd. Given how the spread between the onshore and offshore yuan widened in December, exporters and importers "may move funds across the border through trading with offshore affiliates. By blowing up trade figures, traders may potentially receive a larger forex quota to move their funds abroad."
Other data from Hong Kong and China also tell different stories. While China's General Administration of Customs said imports from the territory surged 65 percent in December from a year earlier, Hong Kong said Tuesday that total exports to mainland China increased 0.9 percent from a year earlier.
After China's trade data were released, economists including Iris Pang at Natixis SA and Larry Hu at Macquarie Securities Ltd. flagged the possibility it reflected fake invoicing.
While China's government has strict rules on importing capital, those seeking to exploit yuan moves can evade limits by disguising money inflows as payment for goods exported to foreign countries or territories, especially Hong Kong. Past trade mismatches—including in September 2014—tended to coincide with appreciation of China's currency.
The wider gap was partly due to seasonal variations, which typically widen in December, said Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore.
"Nevertheless, such a large gap can't be justified only by a seasonal pattern," Xie said. "It's also probably due to fake trade taking advantage of rising onshore-offshore yuan spread."
–With assistance from Michael J. Munoz and Enda Curran
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
