Data Discrepancy Clouds China’s Report of Export Boom; “Fake exporting is rampant,” said an export-agency owner in the city of Foshan in China’s southern Guangdong province

April 3, 2013, 2:32 p.m. ET

Data Discrepancy Clouds China’s Report of Export Boom

BEIJING—A discrepancy between China’s export data and Hong Kong import numbers has raised doubts about what appeared to be booming overseas demand for Chinese goods, amid uncertainty about the strength of the recovery in the world’s second largest economy.

China’s customs bureau reported in March that exports rose 19.8% year-to-year in the three months through February, despite a fragile recovery in the U.S. and Europe. The report has buoyed confidence that China’s economy is strengthening, after growth in gross domestic product touched a three-year low of 7.4% year-to-year in the third quarter of 2012.

A resurgence in exports has been a bright spot for the economy, suggesting demand for goods remained strong enough to keep production lines humming and provide jobs for tens of millions of migrant workers.

But some exporters, trade agents and economists said the export numbers were likely to be inaccurate because of false reporting by exporters and local governments. They point in particular to mismatching trade figures with Hong Kong, the first destination for many mainland Chinese goods.

In the three months through February, mainland customs reported $94.9 billion in exports to Hong Kong, but Hong Kong customs reported only $58.7 billion in imports from the mainland. The discrepancy during the period was significantly greater than at any other time in recent years.

China’s export growth for February could be overstated by around seven percentage points, based on an analysis of data discrepancies, Louis Kuijs, China economist at RBS, estimated.

Some exporters exaggerate invoices to gain tax rebates and evade controls on bringing cash into the country, and some local governments claim higher export numbers to look good, people familiar with reporting practices said.

“Fake exporting is rampant,” said an export-agency owner in the city of Foshan in China’s southern Guangdong province.

“It’s really easy to inflate export data if you want to,” said a customs official in China’s eastern Zhejiang province, an export powerhouse.Chinese customs headquarters didn’t respond to requests for comment. In the past they have defended the data. “The customs data is based on invoices submitted by companies,” the General Administration of Customs said in January. “Every dollar in the data corresponds to a real invoice,” it said.

The exact reasons for the mismatch aren’t clear. Hong Kong’s Customs & Excise Department and Census & Statistics Department said failure to lodge an accurate export-import declaration could result in prosecution.

Economists said the need to evade China’s system of capital controls could be a powerful motivator. Those controls make it difficult to move investment funds in and out of the country. By labeling goods as valued higher than their real worth and sending them abroad, a person or company can bring in extra money from outside the mainland.

Over-invoicing exports to bring funds into the country is common practice, said the chief executive of a U.S. sporting goods company with factories in Guangdong. “If you’re a financial institution and you want to bring money into China to buy stocks or buy properties, and you can only do so much officially, you can team up with an exporting company and ask them to raise the price for a period of time,” the executive said, adding that it isn’t a practice the company follows.

It isn’t clear why such a surge may have occurred. But in the past few months, investors have had added motivation for evading controls. Mainland equity markets ended a weak 2012 with a strong rise, property prices began rising again and the yuan gained ground against the dollar.

Reporting higher exports would also allow firms to claim a higher rebate. China’s average tax-rebate rate for exports is about 12.9%, Zheng Jianxin, vice director of tax department of China’s Ministry of Finance, said earlier this year.

“You can move goods into an export zone and either undercount the inventory compared with what you’re invoicing, or invoice a fair amount and then somehow bring the goods back into China,” said Ken DeWoskin, head of research at Deloitte China. An alternative would be to move goods into an export processing zone through Chinese customs and then back out without entering Hong Kong, he said.