May Integrated Circuit Exports: Physical Volume Up Only 2.1% Year-on-Year, Yet Value Surged 110.9%. No Extra Goods Were Shipped, but the Money Doubled Out of Thin Air — a Textbook Case of Data Dewatering. Companies Use "Buying High, Selling Low, and the Royalty Black Box" to Send Both Profits and Capital Abroad, While Also Helping the CCP Make Its Export Numbers Look Pretty.
The video analyzes the tactics used by Chinese companies to legally transfer profits and capital to overseas tax havens through transfer pricing schemes such as "buying high, selling low" and "intangible asset black boxes." It also reveals the phenomenon of fake trade and capital flight by examining data from May, which shows a severe divergence between the volume and value of integrated circuit exports.
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What it achieves is the entirely legal flight of capital. Suppose you have a manufacturing factory in China, let's call it Company A. And then, whether in the Cayman Islands or another tax haven, it doesn't matter, you have another trading company, let's call it Company B. On the surface, these two companies are independent, but the actual person behind them—the ultimate controller, so to speak—is you. How is this normally done with Company A? For instance, if Company A makes a profit, you have to pay a 25% corporate income tax in China. If you also want to take that profit back into your own pocket, you have to pay another 20% personal income tax. By the time it finally reaches your hands, it might be cut in half. Moreover, under the existing foreign exchange controls, transferring tens of millions or even hundreds of millions of funds directly overseas is basically impossible. What can be done? Ah, at this point, something called transfer pricing makes a dazzling debut. Its sole core purpose is to forcibly transfer profits from high-tax, highly regulated regions to low-tax, zero-regulation regions. What it achieves is the entirely legal flight of capital. So how do these people play this game? They mainly rely on the following three consecutive moves. Everyone must understand this routine! This routine is quite interesting.
The first routine is called high-buying. Why high-buying? It is to keep the costs within the wall and send the profits out of the country. For example, Company A in China needs to import a batch of raw materials. Normally, the market price is 100 yuan, but you have Company A purchase them from your overseas Company B at an exorbitant price of 500 yuan. As a result, Company A's costs instantly soar, and not only does it not make money on the books, but it even incurs a huge loss. This way, you don't have to pay Chinese corporate income tax, right? And the 400 yuan price difference you overpaid becomes the legitimate profit of Company B, which grandly flows out in the name of trade payments and settles where? It settles in your account in the tax haven.
And then comes low-selling, which is selling assets on the cheap. What does this mean? It means intercepting profits overseas. For example, your Chinese Company A produces a batch of smartphones with a cost of, say, 1,000 yuan, and the market price can sell for, say, 2,000 yuan. But instead of letting Company A sell directly to real overseas customers, what do you do? You first sell them to your overseas Company B at a rock-bottom price of 1,001 yuan, and Company B then turns around and sells them to the end users for 2,000 yuan. China's Company A works hard for a whole year, making a very meager profit of only 1 yuan per phone and paying very little tax, while the remaining windfall profit of over 990 yuan is effortlessly kept overseas by Company B.
The third trick, and also the most fucking awesome one, is relying on the black box of intangible assets. This stuff is the hardest to investigate because as long as you are still engaged in physical trade, you can at least check the market price, right? So, we play with intangible assets. For example, you set up a Company B overseas and register a trademark there, or let's say, acquire some so-called advanced management experience—just using this as an example—and then license it to Company A in China for use. Every year, you charge Company A huge royalties, along with a series of consulting fees, brand management fees, and so on. Services and IP like this have no so-called standard market price at all; it's all fucking based on whatever you say. So what is this? This is like sticking a tube into the profits of a company and continuously pumping them overseas. Do you all see it now? That is how Hong Kong's growth comes about.
Now, let's look at this set of data. Hey, this is also the biggest mystery in this report card. Where is the mystery? It's still integrated circuits. The physical volume of integrated circuit exports in May—hey, this is volume, not value—only grew by 2.1% year-on-year, and the growth rate of this volume even fell by 1.7 percentage points compared to April. However, as just mentioned, the value surged by 110.9%. If we look at it over a longer period, it's even more absurd. In the first five months, the volume grew by 8.7%, but the value increased by 90%. Not many more boxes of goods were shipped, but the fucking money nearly doubled. So how did the money inflate? Let's follow the journey of this batch of goods and trace this account layer by layer! First, let's look at when the goods haven't even left the factory.