Fake Invoicing and China Trade

There are various reasons people will submit "fake invoices" when reporting trade to the authorities, such as noted here.

Inflated mainland export figures last year due to fake invoicing have led to slower growth rates in trade data this year, economists said, and that might cause Beijing to miss its full-year external trade growth target of 7.5 per cent.

Some reasons:

1. Avoid duties.  Buyers may ask sellers to falsify invoices where say the duty is 10%.  To claim $10,000 in goods is really $5,000 is to save $500 in duties.

2.  This is how it works. Investors create fake invoices for exports to Hong Kong. That allows them to bring cash back onshore, circumventing China’s capital controls, and allowing investors to benefit from higher Chinese interest rates. The extent of the practice is visible in the difference between China’s official exports to Hong Kong and Hong Kong’s much-lower record of imports from China.

In other words, either nothing was exported or $10,000 in sales is reported as $100,000 and so in any event the incoming payment is free of Chinese capital investment inflow controls.  There are also other export tax rebates etc that can be claimed.

And...

Another common reason manufacturers fake exports is that they are colluding with someone who wants to move foreign currency into China, perhaps to take advantage of the nation's red hot property market.
The nation's currency is tightly controlled, and foreign investors must jump through a daunting series of bureaucratic hoops to get money in. But partnering up with a factory owner who is willing to fake some export invoices is a much faster way of illicitly getting cash into China.
The wheeze works thus: the exporter sends the businessman a fake invoice for goods. The businessman pays the invoice by depositing dollars in the manufacturer's offshore bank account. The manufacturer then uses the export paperwork to get permission from his bank to convert the dollars into Chinese yuan. The factory owner may also get a fee from the investor, and can collect a VAT rebate on top.

I've been asked to falsify invoices as an exporter by customers.  I answer no.  That is the end of it.  There is enough good business out there to do without having to do funny business.  Never be so eager to do a deal that you will break the rules.  And keep in mind the person asking is rarely interested in capturing a few per cent savings, they are usually interested in capturing you.

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