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Reported trade figure discrepancy, regulatory arbitrage, and round-tripping: Evidence from the China–Hong Kong trade data

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  • Hung-Gay Fung

    (College of Business Administration & Center of International Studies, University of Missouri – St Louis, St Louis, USA)

  • Jot Yau

    (Albers School of Business and Economics, Seattle University, Seattle, USA)

  • Gaiyan Zhang

    (College of Business Administration, University of Missouri-St Louis, St Louis, USA)

Abstract

This study uses reported trade figures from China and Hong Kong to examine the relationships among market impediments, trade figure irregularities, and tax-induced regulatory arbitrage. The empirical findings, consistent with our tax-induced regulatory arbitrage models and the round-tripping phenomenon in China (that is, moving funds across the Mainland Chinese border through trade, typically to Hong Kong or an offshore tax haven, before re-entering China as foreign direct investment), provide support for several conclusions. First, the spurious flows of funds to and from China, via the underreporting of exports and the overreporting of imports, closely follow the preferential tax incentives accorded to foreign investors. Second, the underreporting of exports is negatively related to export tax rebates. Third, the overreporting of imports is negatively related to import tariffs. Finally, both of these two appear to be most prevalent in state-owned enterprises.

Suggested Citation

  • Hung-Gay Fung & Jot Yau & Gaiyan Zhang, 2011. "Reported trade figure discrepancy, regulatory arbitrage, and round-tripping: Evidence from the China–Hong Kong trade data," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 42(1), pages 152-176, January.
  • Handle: RePEc:pal:jintbs:v:42:y:2011:i:1:p:152-176
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    Cited by:

    1. Peng, Mike W. & Parente, Ronaldo C., 2012. "Os pontos fracos institucionais por tras das multinacionais de paises emergentes," RAE - Revista de Administração de Empresas, FGV-EAESP Escola de Administração de Empresas de São Paulo (Brazil), vol. 52(3), May.
    2. Gokalp, Omer N. & Lee, Seung-Hyun & Peng, Mike W., 2017. "Competition and corporate tax evasion: An institution-based view," Journal of World Business, Elsevier, vol. 52(2), pages 258-269.
    3. Xie, En & Reddy, K.S. & Liang, Jie, 2017. "Country-specific determinants of cross-border mergers and acquisitions: A comprehensive review and future research directions," Journal of World Business, Elsevier, vol. 52(2), pages 127-183.
    4. Robert E. Hoskisson & Mike Wright & Igor Filatotchev & Mike W. Peng, 2013. "Emerging Multinationals from Mid-Range Economies: The Influence of Institutions and Factor Markets," Journal of Management Studies, Wiley Blackwell, vol. 50(7), pages 1295-1321, November.
    5. Svetlana Ledyaeva & Päivi Karhunen & Riitta Kosonen & John Whalley, 2015. "Offshore Foreign Direct Investment, Capital Round-Tripping, and Corruption: Empirical Analysis of Russian Regions," Economic Geography, Clark University, vol. 91(3), pages 305-341, July.

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