The Emperor's True Clothes(1)

On May 10, the results of a Ministry of Commerce (MOFCOM) investigation into the falsification of export data by 415 textile and clothing exporters from five cities was completed. At least 351 of the businesses had greatly overstated their exports in order to win quota credits next year.

The 415 businesses had been successively reported to MOFCOM during the two weeks between April 9th and 23rd, whereupon MOFCOM immediately followed up with investigations. According to one source involved in the investigations, which were initiated by MOFCOM's Textile Product Quota Auction Committee, these businesses lied about at least 2 billion yuan worth of exports. "Many more have slipped through the net," they told the EO.

The main function of export figures are their use in calculating next years quotas. But this year's Sino-European agreement is about to expire, and the Sino-American has only one year left. This greatly discounts quota values.

According to a source close to MOFCOM's quota auction committee, even deeper investigations have begun.

In 2005, according to Sino-American and Sino-European trade agreements, a portion of China's textile products received restrictions on quantity and kind. The US and Europe are the Chinese textile industry's main markets, and in order to ship there, Chinese businesses must first obtain a license from MOFCOM. According to the business' trade credits, the Ministry will give them a license covering the kinds and quantity of permissible exports-- in effect, quotas. Competition over the quotas stems from this process.

This case of false reporting mainly focuses on Guangdong, Zhejiang, Heilongjiang, Sichuan, and Xinjiang. Businesses working out of these major textile and clothing export regions made fraudulent reports on a massive scale during their most recent quota declarations.

One month ago, businesses that were dissatisfied with the second round of quota bidding notified MOFCOM of false reporting behavior.

Afterwards, the quota auction committee demanded that 415 businesses, before April 27, provide relevant documentation. In the end, 297 of them complied, among which only 64 provided authentic data.

Xungang Jingmao Limited Co. is one business being scrutinized by MOFCOM-- it is suspected of falsifying export data on 2,184 kinds of products. In response to this a spokesman said, "That's nonsense. What proof is there that we've done anything wrong?" The same day, the investigation's final report revealed that MOFCOM had significantly adjusted Xungang's export figures, eliminating 851 kinds of products and reducing the figures for 685.