SocGen: Nearly Every Company We Met ‘Admitted’ That Chinese Trade Is About More Than Moving Goods + Chart of the Day: China Exports to Taiwan

SocGen: Nearly Every Company We Met ‘Admitted’ That Chinese Trade Is About More Than Moving Goods

Sam Ro | May 8, 2013, 8:48 AM | 2,044 | 

The better-than-expected Chinese trade data has everyone crying foul. Nomura’s Zhiwei ZhangBank of America Merrill Lynch‘s Weijun Hu and Ting Lu, and Societe Generale’s Wei Yao have all pointed to discrepancies between China’s numbers and the numbers of its trading partners. Furthermore, all point to companies using inflated bills as a way to circumvent strict Chinese capital controls and move money in and out of the mainland. “In 1Q13, China’s export data were heavily distorted due to over-reporting by exporters who might bring in hot money through fake exports and arbitrage the differential between CNH/USD and CNY/USD by moving goods in and out of HK,” said BAML’s Hu and Lu. SocGen’s Yao is actually having a hard time finding people who aren’t engaged in this practice. “As for reasons, our observation from the trips to the mainland led us to believe that there is indeed a large amount of speculative capital flows,” wrote Yao in a note to clients. “Nearly all corporates we met admitted that they were conducting some forms of interest rate arbitrage on the expectation of further yuan appreciation.

CHART OF THE DAY: It Doesn’t Take A Genius To See Something Fishy In China’s Trade Data

Sam Ro | May 8, 2013, 7:29 AM | 4,509 | 4

Earlier today, China published its official April trade figures. And while the numbers for both imports and exports were much stronger than expected, experts have been left scratching their heads over the unusual discrepancies. For one thing, exports surged 14.7% year-over-year even as exports to the U.S. fell by 0.7%. Exports to the EU fell by 6.4%. In a note to clients, Nomura’s Zhiwei Zhang attributed it to companies trying to get around strict Chinese capital controls. “We believe exports to destinations like Hong Kong, a major financial hub, are likely being over-invoiced in an attempt to circumvent capital controls and bring foreign capital into China,” said Zhang who pointed out that exports to Hong Kong surged by 57.2%. Societe Generale’s Wei Yao agrees with Zhang.  “As for reasons, our observation from the trips to the mainland led us to believe that there is indeed a large amount of speculative capital flows,” wrote Yao in a note to clients. “Nearly all corporates we met admitted that they were conducting some forms of interest rate arbitrage on the expectation of further yuan appreciation.” But Hong Kong wasn’t the only discrepancy. Yao noted a whopper in the Taiwan numbers. “Head-scratching discrepancies in bilateral data comparison persisted on both sides of the ledger,” she wrote. “Compared with the data from Taiwan – the only economy besides China that has published the complete set of April data – growth of mainland exports to Taiwan was 57.7 ppt faster based on China’s data (+49.2% yoy vs. -2.7% yoy) and that of mainland’s imports from Taiwan was 58.6ppt faster (+55.7% yoy vs. -2.9% yoy)! The gaps narrowed only marginally from March.” No wonder people question the reliability of the data.

moneygame-cotd-050813

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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