Over-invoicing has been a recurring problem in Chinese export data, with local corporates overstating their exports as a way of channeling offshore capital onshore. In recent years, this has taken the form of a ‘carry trade’ with over-invoiced proceeds used to invest in higher-yielding shadow banking products, and to take advantage of the appealing vol-adjusted carry and the policy appreciation bias in the RMB. A combination of regulatory crackdown, trust product concerns, and the shift in policy bias towards greater volatility in the currency had halted this.
Read the full report: FX Daily