Are Chinese Export Numbers Increasingly Sketchy?

China continues to beat market expectations in many crucial economic categories, namely exports, and some analysts are changing from confused to skeptical.

China’s exports increased 14.7 percent according to official figures, compared to the 8.6 percent which had been previously expected. Of equal importance, the numbers released by China’ trading partners are showing a discrepancy in export data. The most dramatic difference was between China and Hong Kong’s account of exports to the special administrative region. China claimed its exports were up 74.1 percent, while Hong Kong showed a much humbler increase of 9.9 percent. Quite a startling difference.

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So why are numbers coming out of China increasingly sketchy?

Wei Yao, an analyst at Societe Generale, thinks that Chinese companies might be paying more for goods shipped within China on the assumption that the yuan is going to appreciate. These ‘speculative capital’ flows could be making Chinese exports appear stronger, when in reality, domestic companies are simply trying to circumvent financial regulations.

Taiwan and China also had differing opinions of how much the world’s second largest economy was exporting. China boasted a more than 49 percent increase in exports to Taiwan in the last year, but according to the Taiwanese government their imports from China actually decreased by nearly 3 percent.

Another reason for these ridiculous differences may be an increase in what is called “carrier trade” whereby exporters take out loans against their traded products, and invest this money in various wealth management products after converting the loans into yuan. According to Credit Suisse China economist Dong Tao, “This explains why China’s export data surged, but shipping volumes were flat, and why forex reserves surged despite weak inflows in foreign direct investment, property purchasing and A-share investments.”

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A-shares are yuan-denominated shares traded on mainalnd Chinese stock exchanges.

Chinese companies are able to generate large amounts of cash for themselves in the form of forex loans this way, and proceed to invest these loans in various assets which return them anywhere from 2 to 5 percent more than the interest rate on the loan. It’s a clever method of leveraging money which has taken the Guangdong province by storm. Guangdong is the largest province in China in terms of exports and GDP.

This creates a rather complicated situation for foreign investors who aren’t sure what to make of China’s present situation. For the period January to April 2013 foreign investment was up 1.2 percent to 38.3 billion from the same period last year. However, if further data coming out of China continues to be questionable, this sort of investment could dwindle unless Beijing gets a handle on the situation, and real growth is subsequently seen in the sector.

According to Tao, though, “Beijing has started to act against such carry trades by tightening bank trade finance criteria.”

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