Phantom Goods Import to Disguise Money Outflow + Critique on BIS

choi

Enda Curran, Phantom Goods Disguise Billions in China Illicit Money Flows. Bloomberg BusinessWeek, Mar 8, 2015 (blog).
www.bloomberg.com/news/articles/ ... icit-money-outflows

Quote:

"Days after the Switzerland-based Bank for International Settlements played down fears over capital flight out of China, new trade data [from Deutsche Bank] has put the spotlight on a channel used to ferret out billions worth of illicit money flows: phantom goods.

"February data released Tuesday [Mar 8] show those imports [China's imports from Hong Kong] jumped 89 percent from a year earlier, even as total imports fell 14 percent. While the rise wasn’t as great as in January, economists said the spike follows similar patterns in recent months that point to companies using trade channels to pay for goods far in excess of their value or even that don’t exist at all.

" 'A strong desire to get assets out of renminbi and into a foreign currency is distorting China's official trade data at present,' economists at Fathom Financial Consulting Ltd in London wrote in a note.

"little attention appears to have been paid [by Chinese government] to companies misreporting imports and exports, according to research by Deutsche Bank AG. Economists at the bank found the practice has become a key way to skirt capital controls [though Deutsche Bank's estimate is $328b between August and January, and yet Bloomberg Intelligence put the total for 2015 at $1 trillion]

My comment:
(a) I believe that Bloomberg misspeaks: "the rise [pf imports from Hong Kong in February] wasn’t as great as in January." It should be "was greater than in January."

The graphic at issue follows this paragraph, where
(i) the white line represents "China Imports from Hong Jong -- USD YoY on 2/29/16 (R1)"  (I do not know what "R1" stands for, but it should mean "right scale.")
(ii) the blue line is "USD/CNY (L1)."  In other words, the blue line is yuan's exchange rates against dollar, shown in the left scale.

The quotations above are legend (in the left upper corner) of the graphic.

(b) "Still, the BIS analysis only covered the period between July and September and captures a portion of the money being transferred out of China. For example, the data don’t cover gross flows or portfolio transactions out of China."

"portfolio transactions out of China"

That means those transactions that are consummated outside China.