Accuracy concerns over China trade data; The 3 Key Reasons Chinese Export Growth Slumped In March; still, March number could also be overstated because exports to bonded areas jumped a whopping 343 percent year-over-year in March

Last updated: April 10, 2013 4:50 am

Accuracy concerns over China trade data

By Jamil Anderlini in Beijing ©AFP

China’s latest trade figures showed a sharp decline in export growth combined with a strong rebound in imports in March, but volatility and discrepancies in the data have raised concerns about their accuracy.

Exports from China increased 10 per cent in March from the same month a year earlier, compared with a 22 per cent increase in February, while imports surged 14.1 per cent in March, compared with a year-on-year drop of more than 15 per cent the previous month, according to Chinese customs administration data released on Wednesday.

Part of the volatility was explained by the long Lunar New Year holiday, which shuts down most of the country for weeks and fell in February this year, but most analysts said there was also a problem with the data.

“The 10 per cent headline growth number [in exports] masks an uncomfortable reality – either the trade data are unreliable or if they are reliable then what are being booked as exports are not actually exports,” said Alistair Thornton, China economist at IHS Global Insight. “The breakdown of exports by destination veers towards the absurd.”China’s exports to its separately administered territory of Hong Kong grew 93 per cent in March from the same month a year earlier, the fastest growth since March 1995, even as exports to the EU fell 14 per cent and exports to the US dropped 6.5 per cent.

Total exports to Hong Kong of $48.4bn in March were almost double the $26.8bn in Chinese exports to the US – China’s second-largest export market – last month.

“Given a lot of exports to Hong Kong are actually re-exported to the EU and US as final destinations this seems a little incongruous to say the least,” Mr Thornton said.

The apparent huge increase in exports to Hong Kong continues a trend that began late last year.

In the three months until the end of February, China’s customs reported $95bn in exports to Hong Kong but the independently-administered customs authorities in Hong Kong reported less than $59bn in imports from mainland China, almost all of it for re-export to other countries.

A similar although less pronounced dynamic appears in exports to Taiwan, with Beijing reporting an increase in exports to Taiwan of 53 per cent in January, while Taiwanese figures showed a 35 per cent increase in imports from mainland China that month.

Most analysts said the highly volatile and implausible Chinese trade data were likely the result of capital inflows being disguised as trade invoices in order to evade the country’s restrictive capital controls.

There is also strong evidence that many exporters are faking export orders in order to take advantage of government tax rebates for exports.

Some analysts have also suggested that local governments may be pressuring exporters to book future orders so they can show good figures out of their jurisdictions to please China’s newly-installed leaders.

“Hong Kong’s exports to the rest of the world remain tepid and it is widely believed that China’s exporters have inflated their receipts in order to bring in more capital to the mainland or get more export rebates from the central government,” said Liu Ligang, chief China economist at ANZ Bank. “Artificially strong export numbers could result in misinformation and policy failure . . . perhaps over the short term the government should enforce more strict regulations on the trade reporting system.”

Zheng Yuesheng, the spokesman for China’s customs administration, acknowledged the large discrepancy between mainland and Hong Kong figures and said Beijing was looking into possible reasons.

He said customs data rely mostly on direct reporting by export companies and that some of them may be faking their declarations.

“Some companies may be using the goods exports to bring in capital and to take advantage of an arbitrage between the value of the renminbi in Hong Kong and in the mainland,” Mr Zheng said. “We are paying attention and investigating this possibility.”

He said some companies reported Hong Kong as the final export destination when goods only transited Hong Kong on their way to other markets while some other companies, especially multinational companies, exported goods to Hong Kong and then re-imported them to the mainland.

“The logistics practices and business model of these multinational companies can also increase the figures for mainland exports to Hong Kong,” he said.

The 3 Key Reasons Chinese Export Growth Slumped In March

Mamta Badkar | Apr. 9, 2013, 11:47 PM | 387 | 1

Chinese exports were up 10 percent year-over-year, down from 21.8 percent the previous month.

But this sharp slowdown isn’t a complete surprise since the strong export data in February was attributed over-reporting.

Societe Generale’s Wei Yao had said last month’s rise in export data was “the result of disguised capital inflows, as exporters could overstate export amount in order to move yuan into the mainland,” according to some rumors.

Bank of America‘s Ting Lu offers a few other explanations. First, he believes that the “growth of higher-value added ordinary exports …used as tools for over reporting exports, slumped to -4.5% yoy in Mar from 29.8% in Jan-Feb due perhaps government’s crack down on misbehavior.”

Second, he believes there is a chance that the March number could also be overstated because exports to bonded areas jumped a whopping 343 percent year-over-year in March. This compared with a 201 percent increase in Jan-Feb, and compares with a 40 percent rise in previous months.

Bonded zones include free trade zones, export processing zones, bonded logistics parks and so on.

Bloomberg reported that companies could be doctoring their trade activity to take advantage of tax benefits to help exporters. And this is why exports to bonded trade zones which have easier requirements on documenting foreign trade have increased.

Lu does expect external demand to remain weak in coming months and weigh on Chinese exports.

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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