China has recently uncovered $10 billion worth of fake trades as part of their nationwide crackdown on local companies. The currency regulator said that around 15 fraud cases have already been handed over to the police for prosecution. According to the allegations, Chinese companies reportedly falsify records and transactions to get money in and out of China.

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Fake trade deals can do severe harm to the overall economy of China because they not only increase the pressure of hot money inflow, but also provide channels for illegal cross-border capital flows. Part of the blame have also been put on the banks operating in China, since some of them facilitated the abnormal increase in transit trade financing and false deals by failing to complete authenticity checks and offering services of transit trade financing and receipt and payment.

Wu Ruilin, deputy head of the State Administration of Foreign Exchange (SAFE), shared: "Fake trade deals can do severe harm to ...the overall economy."

The global commodities markets were shaken in June last year when an investigation involving trade fraud uncovered companies using fake receipts at a port in Qingdao to acquire loans from different banks using the same cargo of copper as collateral.

China banks are now placed under scrutiny.

"Some banks facilitated the abnormal increase in transit trade financing and fake trade deals by failing to fulfil the responsibility of authenticity checks and offering services of transit trade financing and receipt and payment," Xinhua (state news agency) quoted Mr. Wu.

China has strict capital control regulations that set limits on the purchase and sale of overseas assets by the country's residents. They also have similar restrictions on the buying and selling of Chinese assets by foreigners. The crackdown on companies started in 13 provinces and cities last year, and that number has nearly doubled to 24 this year.

Tagschina fake trades, China Trade