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2 Much of China's trade surplus is 'not
real' By Olivia Chung
HONG KONG - The world has been astonished
by China's fast-growing trade surplus. China's
major trade partners, the United States and the
European Union in particular, have been pressing
Beijing to reduce the surplus by revaluing its
currency, the yuan. Finding ways to dispose of the
country's mammoth foreign-exchange reserve has
become an increasing challenge for Beijing.
However, Li Deshui, the outspoken former chief
of the National Bureau of Statistics (NBS),
recently remarked that a considerable
part
of China's trade surplus is not real, but in fact
comes from "fake" exports by enterprises that
fraudulently obtain export rebates from the
government. Hence, he argued, the yuan's
appreciation may not effectively curb the growth
of the trade surplus, and it is more important for
the government to strengthen its management and
supervision of foreign trade.
This is the
first time a senior Chinese official has used this
defense of Beijing's policy toward the yuan.
According to customs statistics, China's
trade surplus swelled by 74% last year to US$177.5
billion from $102 billion in 2005, boosting the
country's foreign reserve to well over $1 trillion
by end of last year.
The US and the EU
have increased their pressure on China for the
yuan's revaluation. But China has stood firm on
its gradualist approach toward flexibility of the
exchange rate.
Li's comments could be seen
as a new official argument to defend Beijing's
stance. "The key to ease the over-rapid growth in
trade surplus is not in the yuan's exchange rate,
but in improving supervision on fake exports. A
considerable part of the huge trade surplus in
fact is from fake exports," he said early last
week in Beijing.
He added that speculation
on the yuan's revaluation and export-tax rebate
fraud are the key factors behind the growing
number of fake exports in recent years.
Li, who was well known for his outspoken
criticism of the falsification of economic
statistics by local officials, was appointed a
member of the Chinese People's Political
Consultative Conference, the country's top
advisory body, after he retired from the NBS last
March. He called for improved trade management and
supervision to tackle the problem.
"A lot
of enterprises are making fake exports to cheat on
a substantial amount of export tax rebates. At the
same time they bring in foreign currency with
expectation of the yuan's appreciation," he said.
A popular practice is to export certain
goods to get tax rebates and then smuggle or
import the goods back to sell in the domestic
market. In the first eight months of 2006, about
$447 million worth of domestically made goods were
"exported" and then "imported", according to the
General Administration of Customs. The amount of
smuggled in "exported" goods could be much larger,
though it is difficult to calculate.
Because of this, Li said, China's export
figures are exaggerated. One must take this into
consideration when looking at the country's
foreign-trade figures, the former statistics chief
advised.
"Export-tax rebates, introduced
in 1985 and aimed at boosting export growth, have
turned out to be made use of by unscrupulous
enterprises," Li said.
After China joined
the World Trade Organization, it began gradually
to reduce export-tax rebates.
In fact,
many economists at home and abroad have pointed
out the problem of fake exports, saying that
because of this factor, China's trade surplus does
not necessarily justify new pressure for yuan
appreciation. But given that such fraud cases
often involve collusion between enterprises and
corrupt customs officers and local officials, the
government has been reluctant to admit that the
problem exists until recently.
Stephen
Green, a senior economist at Standard Chartered
Bank, said that, boosted by the expectation of the
yuan's appreciation, some Chinese exporters and
trading companies have also exaggerated the
amounts on invoices of exports handed over to
local authorities in a bid to bring more hard
currency into the country.
This
"mis-invoicing" was commonplace among Chinese
importers over the last decade, but back then it
was a way of getting money out of China, he wrote
in Business Week last May. Now it is the other way
around. Mis-invoicing is being used by exporters
to bring funds in, given the strong likelihood
that the yuan will gain against foreign
currencies. This also helps inflate the value of
Chinese exports.
Green said the actual
trade surplus in 2005 was probably only $35
billion after the deduction of false export claims
and concealed non-trade capital inflow, which
could total $67 billion.
Zhang Yansheng,
director of the Institute for International
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