In the older days China issued import licences to non-Sate entities on the provision that they export equal to or more than they import in order to maintain an annual trade Surplus. Over the years that may have been incorporated into a trading scheme via the State owned Import/Export/insurance entities:
When we had a 15% import duty on motor vehicle imports to protect local manufacturing then, a vehicle importer could buy import credits from a general exporter to offset some or all of the 15% import duty.
IMO, China's exports have dropped dramatically since Jan 1st and that is why they are using fine print in import supply contracts to slow imports and, where possible, replace them with domestic raw materials (eg: thermal coal).
The Trump/China Farm Produce of last January doesn't help either, IMO.
It has taken China 10 years to accrue a $3 trillion warchest of foreign reserves and , IMO, it will do whatever it takes to preserve that stash. Up to 31st March, china was still running a trade surplus; albeit much reduces from a year ago.
There are other issues relating to the quality of imports. Since China severely restricted the outflow of money by Chinese citizens out of China some ingenious schemes have been invented, IMO. Many Chinese entities have listed on the ASX , the TSX etc and subsequently delisted.Some said that some of these listings were for Chinese citizens spiriting lollies out of China. Many have folded in Australia over the past 5 years.
Similarily, Chinese entities can transfer lollies out of China via an import scheme: -China entity (a) can own shares in a Chinese importer and say an Aussie exporter.
This is how the scheme could work: -Aussie entity labels exports premium eye fillet steak at say $25/kg when in fact its chuck stake worth $10/kg -Chinese importer , pays the $25/Kg Effectively $15/Kg has been transferred out of China breaching China's currency laws.
So in difficult economic times the Chinese Government may audit all suspect imports and jail those frauding the system (Xi's anti-coruption program is still in full swing)
A similar scam can be run with coal or iron ore and our State Authorities are not likely to object because they are getting higher royalties because of the reverse transfer pricing scam. eg: invoice iron ore as 62% FE when in fact it's 58% FE etc.This could mean a difference in price of $30/ton!
If transfer pricing can happen one way , ( where multinationals price up their import products overseas to avoid Aussie tax , then why not the reverse when Chinese businesses want to realise their profits outside China?
