Somebody up in Beijing has noticed that Hong Kong’s parasite economy does not necessarily serve the national interest. Reuters reports that our local authorities have been motivated into clamping down on ‘fake trade-invoicing’ – a euphemism for lying to Customs about the value of goods crossing the border. In effect, it enables Mainland-based companies to move cash out of (or for that matter into) the country in breach of capital controls.
The practice has been going on for decades. It is the respectable grown-ups’ version of channeling funds out through Macau’s casinos. The hordes who smuggle milk powder and Yakult from Sheung Shui to Shenzhen – and who deposit endless little bundles of cash in Hong Kong banks every day – are engaged in a related activity, on a tiny scale.
It sounds better if you call it ‘leveraging arbitrage opportunities’, but what it means is that clean, law-abiding Hong Kong facilitates the breaking of Mainland laws, while Mainland law enforcement and government look the other way. The Chinese regime’s own members and supporters need a way round the restrictions they impose on the masses. Now Xi Jinping has decided that fighting capital flight is more important (this comes soon after other measures, like barring Mainlanders from buying Hong Kong insurance policies).
Like all the other recent micro-managing and interference in markets, this suggests that Beijing is worried – in this case about its own people and business community losing confidence and trying to get wealth out. The Yuan-as-global-currency-replacing-the-Greenback thing is quietly postponed until further notice while we run around in a panic putting out fires. The ‘economic miracle’ Mandate of Heaven looks that little bit more wobbly.
The tradition of ‘trying to plug leaky borders but not really’ goes back a long way. Presumably, it won’t work. But our local officials must put on some sort of show of patriotic, motherland-loving cooperation, though it’s all basically the Mainland’s problem/fault. One interesting question: after decades of taking absolutely zero interest in fake invoicing, are the Hong Kong authorities staffed and equipped to uncover and identify massaged valuations among millions of items of trade documentation? Where do you start?