Cross-posted from Kate Mackenzie at FTAlphaville.
The good news is China’s April trade figures are super high! The bad news is no-one believes them, which is fair enough because just a few days ago the Chinese foreign exchange authority virtually said that the export numbers are not reliable — it plans to crackdown on companies that appeared to be over-invoicing for exports as a way of skirting capital inflow restrictions.
The promise of a crackdown was taken seriously, but it’s believed to be much too late for the April data.
Signs of oddness in China’s trade data have been showing up for several months, and there are several ways of demonstrating this — and several theories as to what’s going on. China’s figures contrast with those issued by some of their key trading partners, both the aggregate and, more worryingly, the country-specific numbers. The short version is that ‘exports’ between areas such as Hong Kong and Taiwan, where special arrangements are in place, are used to cover capital flows, and to game a tax break.
We’ve looked through half a dozen strategist notes and not one of them thinks the export data is accurate, which you can see reflected in all the business news coverage of the numbers. Only Taiwan among China’s major trading partners has so far published its own trade data, and they are way out of alignment — China shows 49.2 per cent year-on-year growth in exports to Taiwan while Taiwan shows a 2.7 per cent fall in imports from the mainland. The numbers for Chinese imports from Taiwan are similarly out of whack between the two countries’ statistics.
Societe Generale’s Wei Yao charted the Taiwan-China data (Chinese exports):
Wei also notes that while Hong Kong has not published its April data, the reported export growth of 57.2 per cent reported by Chinese authorities for the month “continued to look too good to be true”.
However it’s not just the disguised capital inflows that are a source of doubt on the data. From Merrill’s Larry Hu and Ting Lu:
Actual external demand should be much weaker than the headline export figure would suggest, evidenced by (1) Zero export growth in Taiwan and Korea in April; (2) Soft export order sub-index in PMI; (3) Improved but still negative export order growth in Canton Fair closed last week; (4) Weak container throughput growth related to foreign trade (4% in April); (5) Recent signs of growth moderation in the US and Eurozone. As SAFE tightened regulation on forex-related operation for trading companies on 5 May, China’s export growth is likely to trend down in the coming month. We expect exports to grow 12% in 2013 vs. 8% in 2012.
They do believe, however, that the imports data is more credible and points to some recovering of domestic demand.
