Exports plunge as China culls over-invoicing and round-tripping of goods

HONG KONG - China’s exports growth crashed in February, dropping by 18.1% on-year compared to a 10.6% gain in January, as China intensified efforts - especially by introducing two-way fluctuation in the RMB exchange rate - to curb suspicious capital inflows embedded into foreign trade via export over-invoicing and round-tripping.

But China’s imports came in stronger than expected, growing 10.1%, versus 10.0% in January, reflecting an intention to take advantage of low commodity prices - for example, China’s iron ore imports rose by 21.8% on a volume basis in January-February, while the price of iron ore fell by 3.9%.
Because exports declined sharply, China registered a big trade deficit of US$22.9 billion, the first monthly trade deficit since last March. ANZ Bank says the trade deficit could result in a weak RMB over the short term.
“We expect that the trade figures will be more real in coming months as the RMB has become much more volatile and less predictable than before,” ANZ says. “The narrowing onshore-offshore interest rate spread will help deter ‘hot money’ inflows to take advantage of high onshore yields.” www.live.anz.com (ATI).