This page has been archived and commenting is disabled.

China "Faked, Forged" Documents For Exports And Imports: At Least $10 Billion In Fake Trade Exposed

Tyler Durden's picture




 

As we have reported since May 2013, when we explained the role of Commodity (and particularly copper as well as gold) Funding Deals in Chinese "trade" and especially in the laundering of hot money flows, and most recently when we followed up on the first revelations that unknown amounts of physical commodities had been corzined in China's port of Qingdao, one of the key uses of monetary commodities in China is for purposes of "trade", and especially to artificially boost exports by way of fake trade invoicing. Non-existant exports which, it goes without saying, end up boosting China's already slumping GDP. Well, like a recovering junkie addicted to fabricated data, China finally admitted it has a problem when overnight it "uncovered almost $10 billion in fraudulent trade nationwide as part of an investigation begun in April last year, including many irregularities in the port of Qingdao, the country’s currency regulator said today."

Bloomberg reports what we have been saying for years, and many have been suspecting for far longer, namely that companies “faked, forged and illegally re-used” documents for exports and imports, Wu Ruilin, a deputy head of the State Administration of Foreign Exchange’s inspection department, said at a briefing in Beijing. The trades have “increased pressure from hot money inflows and provided an illegal channel for criminals to move funds,” Wu said, adding that those involved in such fraud would be severely punished.

“Some companies used the trade channel to bring in hot money,” said Zhou Hao, a Shanghai-based economist at Australia & New Zealand Banking Group Ltd. SAFE’s investigation “will likely further cool down hot money inflows and commodity imports could slow as banks will likely conduct more careful checks on documentation.

And while it is commendable that China's program economy is pretending that it is cracking down on data fraud (recall the "sum of the GDP parts never equaling the whole" as just one example of outright data fabrication in China), the problem with the data set is how it is intertwined with all other data, because merely cutting down on hot money flows has major impacts not only on China's "optical" growth, as it reduces the contribution to net trade once fake export invoices are eliminated, but it also impacts the "bean count" for current account data in the US and other places where Chinese hot money transits to and from.

But while the end impact of the crackdown is still to be determined, one thing is clear: $10 billion is just the start.

SAFE identified the fake trade invoicing as part of a crackdown on the practice in 24 cities and provinces, Wu said. The news raised speculation that metals supplies may increase as stockpiles tied up in financing deals come back on the market.

Which is something we warned about back in March. The bigger program is that as Goldman calculated, should the entire CFD-sector unwind, the impact could be devastating if it migrates away from the "only" $100 billion in FX loans tied to CFDs, and impact the broader FX loan space, which at last check was a whopping $1 trillion, and whose unwind would generate a wholesale market and bank crash in China, and perhaps serve as the catalyst to start China's outright QE.

Not surprisingly, in the aftermath of the announcement industrial metals fell and the yuan weakened, with copper sliding as much as 0.5% and all main metals on the London Metal Exchange declining.

Finally, another side effect of the crackdown on CFDs is that, as also reported previously, inventories of copper in warehouses linked to exchanges such as the LME and Comex will rise over the next six months in part because of fewer financing deals in China, Goldman Sachs Group Inc. said in a Sept. 23 report.

Which brings us to the original question we asked in March: while for the bulk of commodities an unwind of FX loans in the commodity space means lower prices, by the odd nature of the physical/forward exposure in gold, it may well happen that the unwind of paper hedges would have far greater impact to the upside than any selling of physical gold would have pushing the price to the downside (more here).

We look forward to finding out the answer first hand quite soon.

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Thu, 09/25/2014 - 10:27 | 5255317 IronShield
IronShield's picture

You should be all the more comfortable with your BABA investment as a result of this!

Thu, 09/25/2014 - 10:29 | 5255326 IronShield
IronShield's picture

And of course, if you're poor, you should know who is at fault too!

Thu, 09/25/2014 - 10:35 | 5255357 Relentless101
Relentless101's picture

What a fucking tool that guy is.

Thu, 09/25/2014 - 10:41 | 5255393 overexposed
overexposed's picture

This reminds me of something I read about a certain other country's imports and exports...

http://www.zerohedge.com/news/2013-01-02/why-did-train-carrying-biofuel-...

Thu, 09/25/2014 - 10:36 | 5255364 tempo
tempo's picture

ABBA fake numbers in the future?? Likely

Thu, 09/25/2014 - 10:39 | 5255378 junction
junction's picture

This hot Chinese money has financed the real estate boom in Manhattan high rise apartment buildings.  Flight capital.  If China shuts down this cash pipeline, there will be a lot of unhappy real estate developers in the Big Apple, as well as their paid off politician hirelings (goniffs who grant developers zoning variances and eminent domain rights in return for payoffs).

Thu, 09/25/2014 - 10:43 | 5255399 RaceToTheBottom
RaceToTheBottom's picture

Not just NYC, most of the West coast is being bubbled by them.

Airlines are changing codesharing arrangements so that South China Air has a code sharing arranment with flights from Seattle to Detroit.  I have never seen that before for nondirect flights from China...  They are buying up the city...

Thu, 09/25/2014 - 10:45 | 5255418 Wild Theories
Wild Theories's picture

you got the direction wrong buddy

this hot money flows from west to east

 

Chinese buying houses in the west is not what we are talking about here, don't mix things up

Thu, 09/25/2014 - 11:12 | 5255617 Berspankme
Berspankme's picture

Turnaround trade very common in China. GE and all the multis do it too. I facilitated a lot of these moves when living there. Make a product in china, export it to a bonded warehouse collect tax credit for export. Then import the same product back into china, often used to assemble something where it can then be exported and reimported. I have said for years China's gdp numbers are a mirage, a lot of double and triple counting.

Thu, 09/25/2014 - 12:57 | 5256239 KnuckleDragger-X
KnuckleDragger-X's picture

China's problem is their net porn filters, without them they could of followed SEC best practices and spent their days fapping away. instead somebody noticed there might be a minor insignificant problem with reality. Now they'll have to go the trouble of punishing the innocent and promoting the guilty.

Thu, 09/25/2014 - 10:29 | 5255324 Bill of Rights
Bill of Rights's picture

Cause ( shut the coal plants down! )

 

Effect: Liberty Utilities requests 46% electric rate hike | New Hampshire Energy

Massachusetts' Electric Rates Soar | NECN

 

Thank you Liberal tree huggers, now Suffer in your own stew.

Thu, 09/25/2014 - 12:59 | 5256248 KnuckleDragger-X
KnuckleDragger-X's picture

Just wait till the grid stress's out this winter....

Thu, 09/25/2014 - 10:29 | 5255327 pob
pob's picture

 Fake faked fake  exports.

Thu, 09/25/2014 - 10:29 | 5255333 insanelysane
insanelysane's picture

And I thought the disconnect between the Baltic Dry and Chinese exports was due to more efficient packing of containers. </sarc>

Thu, 09/25/2014 - 10:32 | 5255344 Big Corked Boots
Big Corked Boots's picture

Still waiting for the fake USA docs and stats to be revealed. Oh, wait, that can't happen here.

Thu, 09/25/2014 - 11:09 | 5255354 Bokkenrijder
Bokkenrijder's picture

China fakes things? Oh no! Shock, horror! Who would have thought that?! Stop the press, this is breaking news!

p.s. for all you goldbugs out there who think that China will come to our rescue: forget it! Fiat currency (i.e. money that you can fake at an almost unlimited level) is like the next best thing since the invention of the wheel to the Chinese. The Chinese have copied and will copy everything the West does, including our government bonds bubble, our real estate bubble(s) and fiat curencies.

Thu, 09/25/2014 - 10:35 | 5255360 devo
devo's picture

China is smoke and mirrors. China is much like the Yeti.

Thu, 09/25/2014 - 11:32 | 5255745 daedon
daedon's picture

How do they fake all those brand spanking new highways, bridges, skyscrapers and high speed railways ?

Thu, 09/25/2014 - 15:31 | 5256979 Bokkenrijder
Bokkenrijder's picture

Well, let's wait a few years and then see if these structures are still standing upright.

Almost anything they build and produce for themselves is of very questionable quality, just look at the dangerous children's toys, the poisoned milk, the apartment buildings that collapse sideways, the frequent mining accidents etc etc. Have you ever been to China? Just gently scratch the facade, and almost everything immediately breaks.

Besides, most of those apartment buildings and shopping malls are empty anyway. They are just build to show off and impress gullible souls like yourself. ;-)

https://www.youtube.com/watch?v=rPILhiTJv7E

Thu, 09/25/2014 - 10:37 | 5255362 Calculus99
Calculus99's picture

I always like Buffett's quote -

When the tide goes out you get to see who's swimming naked.

When that tide goes out in China I think the whole world is going to gasp at how many Chinese dicks, pussies and pairs of tits we see on full display.

And don't be thinking it will look like a party at the Playboy Mansion because the flesh will be real ugly.

 

 

Thu, 09/25/2014 - 10:58 | 5255515 nakki
nakki's picture

Yes the Chinese have the next reserve currency, please!! There is a 5000 year old reserve currency out there already its called Gold and Silver. It might get beat up in the near future ( PM complex) but eventually, when the right people own it will become what it always was, something tangible that can't be printed, and a true store of wealth.

Thu, 09/25/2014 - 10:59 | 5255519 orangegeek
orangegeek's picture

if communists become the economic leader of the planet, it's time to do the time warp and get the fuck out of here

 

https://www.youtube.com/watch?v=sg-vgGuTD8A

Thu, 09/25/2014 - 11:01 | 5255546 The Merovingian
The Merovingian's picture

Wow, totally shocked.  How can a government so open and free manipulate data and supress information like that? /s

Thu, 09/25/2014 - 11:02 | 5255560 SoDamnMad
SoDamnMad's picture

Bullish 9mm ammo to punish those who are responsible.  One shot to the back of the head is so much more efficient than incarceration.

Thu, 09/25/2014 - 12:13 | 5255979 clade7
clade7's picture

It dont take 9mm to snuff a Chink...a .17 air gun pellet or an acorn fired out of a wrist rocket is more economical...FWIW

Thu, 09/25/2014 - 14:53 | 5256805 Fuku Ben
Fuku Ben's picture

Tip of the iceberg

Do NOT follow this link or you will be banned from the site!