A sudden swell in China's exports of gold and jewelry may signal a resurgence of speculative currency inflows through inflated trade receipts, raising the prospect the central bank could again act to weaken the yuan and punish speculators.
Trade data this weekend will be closely watched for further evidence of illegal cross-border arbitrage, after September data showed a substantial gap between what China said it exported to Hong Kong and what Hong Kong said it imported from the mainland.
Inflated export receipts are one way to circumvent strict controls on bringing money into China. Speculators may be hoping to profit from a rising yuan or the imminent link-up between the Shanghai and Hong Kong stock exchanges.
"Precious metals contributed to the monthly jump and that is a very easy candidate for over-invoicing," said Chang Chun Hua, China economist at Nomura based in Hong Kong. "But, like commodity financing earlier this year which saw authorities crack down, this gap should shrink in the coming months."
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Inflows of so-called hot money looking to profit from the steadily appreciating yuan prompted a surprise intervention by the People's Bank of China (PBOC) in February, which drove the yuan down by nearly 4 percent by the end of May, scaring off speculators but also punishing poorly hedged investors and companies.
If evidence that such inflows have resumed continues to mount, the central bank may be tempted to deliver another reminder that the Chinese currency is not a one-way bet.
Chinese exports to Hong Kong, where over-invoicing is typically most pronounced, outstripped Hong Kong's recorded imports from China by more than $13.5 billion in September, according to a note from Nomura on Tuesday, roughly double the average monthly gap for the previous eight months of the year.
Jewelry and precious metal exports jumped 678 percent year-on-year or $9.4 billion, potentially providing evidence of a rise in fake trade flows, economists at ANZ in Hong Kong said in a research note on Monday.
A media report last week said authorities were investigating suspected irregularities in the surge in precious metals exports.
China launched a crackdown on falsified invoicing in 2013, and in September the currency regulator said it had stamped out the practice after uncovering $10 billion worth of fake trades.