After Brazil, could China's currency be the next to fall? Billions of dollars are said to have gone missing in foreign exchange over the past year - a development that Chinese officials are desperately trying to play down to minimize market jitters over the fate of the renminbi. At the end of 1998, the nation's forex reserves looked impressive at $145 billion. But they had risen by only $5 billion over 1998 despite a record trade surplus and strong inflows of foreign direct investment. Some China specialists calculate that almost $89 billion in trade and investment gains never found their way to the official coffers, despite the country's tough foreign-exchange regulations and central bank controls.
Officials try to explain away this massive shortfall by admitting to another major embarrassment. The ministry's statistics, they say, are being distorted by fraud and smuggling. The trade data are said to be skewed by export scams so that actual foreign exchange earnings were lower than the levels indicated by official trade data. They also blame a major concession the government introduced in late 1997 that allowed trading firms to retain up to 15% of their hard-currency receipts instead of having to sell the full amount to the state banks.