China Reveals US$10bn in Fraudulent Trade Deals

A Chinese probe into trade finance exposed fraudulent deals amounting to nearly US$10bn, according to a senior official.

Wu Ruilin, deputy director of the supervision and inspection department of China’s State Administration of Foreign Exchange (SAFE), said the regulator initiated a campaign to crack down on fraudulent trade financing in April 2013. Initially centred on 13 provinces and cities, this year it was extended to 24 provinces and cities.

To date, SAFE has discovered trade fraud of nearly US$10bn throughout the country and has referred at least 15 cases to the police, Wu said.

“Trade-financing fraud is very harmful not only to trade but also to the overall economy,” he told reporters. “It increases the pressure of hot money inflows and has even become the channel through which funds of some criminal activities flow in and out of China.”

Wu’s comments provided further insights into the problems within trade finance in China since a scandal involving metal supplies in the port cities of Qingdao and Penglai put the practice drew international attention. Foreign banks and commodities firms have exposure to nearly US$1bn in potential losses, while the estimated exposure for Chinese banks reportedly amounts to billions of dollars.

SAFE’s activities also lend weight to earlier concerns that at least some of China’s trade data has been distorted by companies faking trading invoices to secure financing, especially from Hong Kong, where borrowing rates are cheaper. Chinese regulators last year promised to crack down on the practice.


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