More money is leaving China than it should be.
A chart from Nomura, which shows a huge increase in imports from “taxhaven islands or offshore financial centres” has highlighted a quirk of the Chinese economy.
To skirt capital controls, Chinese households and businesses are seen to overpay for imports in order to get cash out of the economy and into foreign banks and investments.
It’s increasing because they think China may lower the value of its currency, making it more expensive to invest in foreign holdings.
According to a Deutsche Bank note earlier this year, about $328 billion left China in secret this way between August 2015 and January 2016, that’s about 78% of total capital outflows.
Nomura notes that imports from Hong Kong are growing at 130% a year while “significant import growth from other island economies has also been registered, including Samoa, the Bahamas, the Seychelles, the Cayman Islands and the Cook Islands.”
Samoa, which mostly exports coconut cream and oil, has managed to grow its business with China by more than 700%.
Here’s the chart:
Nomura analysts, led by Yang Zhao, said:
“This suggests to us that capital outflows may have been disguised as imports in China’s trade with these tax-haven or offshore financial centres, though the precise volumes are unknown. Excluding Hong Kong’s re-exports, these six regions accounted for 1.4% of China’s total imports in H1.”
As a way of getting money out of the country, it’s been happening for a while.
Here’s the chart from Deutsche Bank earlier this year: